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 inventory is to be valued at $46,800.
• Equipment is to be valued at $64,500.
b. Mays is to purchase $26,000 of the ownership interest of Estrada for $30,000 cash and to contribute $32,000 cash to the partnership for a total ownership equity of $58,000.
The post-closing trial balance of Caldwell and Estrada as of August 31 follows.
Caldwell and Estrada
Post-Closing Trial Balance
August 31, 2014
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. Journalize the entries as of August 31 to record the revaluations, using a temporary account entitled Asset Revaluations. 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. Journalize the additional entries to record Mays’ entrance to the partnership on September 1, 2014.
3. Present a balance sheet for the new partnership as of September 1, 2014.
Answer:
Aug. 31 Asset Revaluations 1,800
Accounts Receivable 1,500
Allowance for Doubtful Accounts 300
[($19,500 – $1,500) × 5%] – $600.
Sept. 1 Adriana Estrada, Capital 26,000
Kris Mays, Capital 26,000
1.
31 Merchandise Inventory 4,300
Asset Revaluations 4,300
$46,800 – $42,500.
31 Accumulated Depreciation—Equipment 15,500
Equipment 3,000
Asset Revaluations 12,500
$64,500 – $67,500.
31 Asset Revaluations 15,000
Brian Caldwell, Capital 7,500
Adriana Estrada, Capital 7,500
2.
1 Cash 32,000
Kris Mays, Capital 32,000
3. CALDWELL, ESTRADA, AND MAYS
Balance Sheet
September 1, 2014
Assets
Current assets:
Cash1 $44,300
Accounts receivable $18,000
Less allowance for doubtful accounts 900 17,100
Merchandise inventory 46,800
Prepaid insurance 1,200
Total current assets $109,400
Plant assets:
Equipment 64,500
Total assets $173,900
Liabilities
Current liabilities:
Accounts payable $ 8,900
Notes payable 15,000
Total liabilities $ 23,900
Partners’ Equity
Brian Caldwell, capital
2 $62,500
Adriana Estrada, capital
3 29,500
Kris Mays, capital 58,000
Total partners’ equity 150,000
Total liabilities and partners’ equity $173,900
1 $12,300 + $32,000
2 $55,000 + $7,500
3 $48,000 + $7,500 – $26,000