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Admitting new partner Brian Caldwell and Adriana Estrada have operated a successful firm for many years, sharing net income and net losses equally. Kris Mays is to be admitted to the partnership on September 1 of the current year, in accordance with the following agreement: a. Assets and liabilities of the old partnership are to be valued at their book values as of August 31, except for the following: Accounts receivable amounting to $1,500 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts. Merchandise inventor)' is to be valued at 546,800. Equipment is to be valued at $64,500. b. Mays is to purchase 526,000 of the ownership interest of Estrada for 530,000 cash and to contribute 532,000 cash to the partnership for a total ownership equity of 558,000. The post-closing trial balance of Caldwell and Estrada as of August 31 follows: Caldwell and Estrada Post-Closing Trial Balance August 31,20Y9 Debit Balances Credit Balances Cash 12,300 Accounts Receivable 19,500 Allowance for Doubtful Accounts 600 Merchandise Inventory 42,500 Prepaid Insurance 1,200 Equipment 67,500 Accumulated Depreciation—Equipment 15,500 Accounts Payable 8,900 Notes Payable (current) 15,000 Brian Caldwell. Capital 55,000 Adriana Estrada, Capital 48,000 143,000 143,000 Instructions a. Journalize the entries as of August 31 to record the revaluations, using a temporary account entitled Asset Revaluations. Debits and credits to the Asset Revaluation account are losses and gains from revaluation, respectively. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Brian Caldwell and Adriana Estrada. b. Journalize the additional entries to record Mays' entrance to the partnership on September 1. 20Y9. c. Present a balance sheet for the new partnership as of September 1. 20Y9.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 12, Problem 12.4BPR
Textbook Problem

Admitting new partner

Brian Caldwell and Adriana Estrada have operated a successful firm for many years, sharing net income and net losses equally. Kris Mays is to be admitted to the partnership on September 1 of the current year, in accordance with the following agreement:

  1. a. Assets and liabilities of the old partnership are to be valued at their book values as of August 31, except for the following:
  • Accounts receivable amounting to $1,500 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
  • Merchandise inventor)' is to be valued at 546,800.
  • Equipment is to be valued at $64,500.
  1. b. Mays is to purchase 526,000 of the ownership interest of Estrada for 530,000 cash and to contribute 532,000 cash to the partnership for a total ownership equity of 558,000. The post-closing trial balance of Caldwell and Estrada as of August 31 follows:

Caldwell and Estrada

Post-Closing Trial Balance

August 31,20Y9

 

Debit

Balances

Credit

Balances

Cash 12,300  
Accounts Receivable 19,500  
Allowance for Doubtful Accounts   600
Merchandise Inventory 42,500  
Prepaid Insurance 1,200  
Equipment 67,500  
Accumulated Depreciation—Equipment   15,500
Accounts Payable   8,900
Notes Payable (current)   15,000
Brian Caldwell. Capital   55,000
Adriana Estrada, Capital   48,000
  143,000 143,000

Instructions

  1. a. Journalize the entries as of August 31 to record the revaluations, using a temporary account entitled Asset Revaluations. Debits and credits to the Asset Revaluation account are losses and gains from revaluation, respectively. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Brian Caldwell and Adriana Estrada.
  2. b. Journalize the additional entries to record Mays' entrance to the partnership on September 1. 20Y9.
  3. c. Present a balance sheet for the new partnership as of September 1. 20Y9.

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Chapter 12 Solutions

Accounting
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