Question

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:
a. Journalize the entries on March 1 to record the investments of Keene and Wallacein the partnership accounts.
b. Prepare a balance sheet as of March 1, 20Y8, the date of formation of the partnership of Keene and Wallace.

Answer 1

Answer:

Explanation:

a. The journal entries are shown below:

Cash $21,060  

Merchandise inventory $56,290  

             To Eric Keene's Capital $77,350

(To record investment made)

Accounts receivable $17,770  

Equipment $54,190  

Cash (Liabilities - Assets) $40,820  

     To Allowance for doubtful accounts $1,950

     To Accounts payable $14,910

     To Notes payable (current) $35,970

    To Reene Wallace's capital $59,950

(Being capital contribution by Reene wallace is recorded)  

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