On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $21,060 in cash and merchandise inventory valued at $56,290. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $59,950. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
Wallace’s Ledger |
Agreed-Upon |
|
Balance |
Valuation |
|
Accounts Receivable | $18,650 | $17,770 |
Allowance for Doubtful Accounts | 1,580 | 1,950 |
Equipment | 83,230 | 54,190 |
Accumulated Depreciation | 30,260 | – |
Accounts Payable | 14,910 | 14,910 |
Notes Payable (current) | 35,970 | 35,970 |
The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,660 (Keene) and $30,270 (Wallace), and the remainder equally.
Required: | |||
1. | Journalize the entries on March 1 to record the investments of Keene and Wallacein the partnership accounts.* | ||
2. | Prepare a balance sheet as of March 1, 20Y8, the date of formation of the partnership of Keene and Wallace.* | ||
3. | After adjustments at February 28, 20Y9, the end of the first
full year of operations, the revenues were $293,150 and expenses
were $203,500, for a net income of $89,650. The drawing accounts
have debit balances of $27,600 (Keene) and $30,800 (Wallace).
Journalizethe entries to close the revenues and expenses and the
drawing accounts at February 28, 20Y9.*
|
1.
General Journal | Debit | Credit |
Cash | $21,060 | |
Merchandise inventory | 56,290 | |
Eric Keene's Capital | $77,350 | |
(To record investment made by Eric Keene as capital contribution) | ||
Accounts receivable | $17,770 | |
Equipment | 54,190 | |
Cash (Liabilities - Assets) (balancing figure) | 40,820 | |
Allowance for doubtful accounts | $1,950 | |
Accounts payable | 14,910 | |
Notes payable (current) | 35,970 | |
Reene Wallace's capital | 59,950 | |
(To record capital contribution by Reene wallace) |
2.
KEENE AND WALLACE Balance Sheet March 1, 20Y8 |
|||
Assets | |||
Current Assets | |||
Cash (21,060 + 40,820) | $61,880 | ||
Accounts Receivable Less Allowance | 15,820 | ||
Merchandise inventory | 56,290 | ||
Total current assets | $133,990 | ||
Property, plant and Equipment | |||
Equipment | 54,190 | 54,190 | |
Total Assets | $188,180 | ||
Liabilities | |||
Current Liabilities | |||
Accounts Payable | 14,910 | ||
Notes Payable | 35,970 | ||
Total liabilities | 50,880 | ||
Partner's Equity | |||
Eric Keene's capital | 77,350 | ||
Renee Wallace's capital | 59,950 | ||
Total partner's equity | 137,300 | ||
Total liabilities and partner's equity | 188,180 |
3.
Working note:
Statement showing distribution of net income among partner's:
Particulars | Eric keene | Reene wallace | Total |
Net income | $89,650 | ||
Interest on capital 10% | $7,735 (77,350*10%) | $5,995 (59,950*10%) | -13,730 |
Salary allowance | 22,660 | 30,270 | -52,930 |
Remaining net income | 11,495 | 11,495 | 22,990 |
Total | 41,890 | 47,760 |
General Journal | Debit | Credit |
Revenues | $293,150 | |
Expenses | $203,500 | |
Eric keene's capital | 41,890 | |
Reene wallace's capital | 47,760 | |
Eric keene's capital | $27,600 | |
Reene wallace's capital | 30,800 | |
Eric keene's Drawing | $27,600 | |
Reene wallace Drawing | 30,800 |
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