Musa Moshref and Shaniqua Hollins have operated a successful firm for many years, sharing net income and net losses equally. Taylor Anderson is to be admitted to the partnership on July 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 June 30, except for the following:
• Accounts receivable amounting to $2,500 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 $76,600.
• Equipment is to be valued at $155,700.
b. Anderson is to purchase $70,000 of the ownership interest of Hollins for $75,000 cash and to contribute another $45,000 cash to the partnership for a total ownership equity of $115,000.
The post-closing trial balance of Moshref and Hollins as of June 30 is as follows:
Moshref and Hollins
Post-Closing Trial Balance
June 30, 2014
Debit
Balances
Credit
Balances
Cash 8,000
Accounts Receivable 42,500
Allowance for Doubtful Accounts 1,600
Merchandise Inventory 72,000
Prepaid Insurance 3,000
Equipment 180,500
Accumulated Depreciation—Equipment 43,100
Accounts Payable 21,300
Notes Payable (current) 35,000
Musa Moshref, Capital 120,000
Shaniqua Hollins, Capital 85,000
306,000 306,000
Instructions
1. Journalize the entries as of June 30 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 Musa Moshref and Shaniqua Hollins.
2. Journalize the additional entries to record Anderson’s entrance to the partnership on July 1, 2014.
3. Present a balance sheet for the new partnership as of July 1, 2014.
Answer:
1.
June 30 Asset Revaluations 2,900
Accounts Receivable 2,500
Allowance for Doubtful Accounts 400
[($42,500 – $2,500) × 5%] – $1,600.
30 Merchandise Inventory 4,600
Asset Revaluations 4,600
$76,600 – $72,000.
30 Accumulated Depreciation—Equipment 43,100
Equipment 24,800
Asset Revaluations 18,300
$155,700 – $180,500.
30 Asset Revaluations 20,000
Musa Moshref, Capital 10,000
Shaniqua Hollins, Capital 10,000
2. July 1 Shaniqua Hollins, Capital 70,000
Taylor Anderson, Capital 70,000
1 Cash 45,000
Taylor Anderson, Capital 45,000
3. MOSHREF, HOLLINS, AND ANDERSON
Balance Sheet
July 1, 2014
Assets
Current assets:
Cash1 $ 53,000
Accounts receivable $40,000
Less allowance for doubtful accounts 2,000 38,000
Merchandise inventory 76,600
Prepaid insurance 3,000
Total current assets $170,600
Plant assets:
Equipment 155,700
Total assets $326,300
Liabilities
Current liabilities:
Accounts payable $ 21,300
Notes payable 35,000
Total liabilities $ 56,300
Partners’ Equity
Musa Moshref, capital2 $130,000
Shaniqua Hollins, capital
3 25,000
Taylor Anderson, capital 115,000
Total partners’ equity 270,000
Total liabilities and partners’ equity $326,300
1 $8,000 + $45,000
2 $120,000 + $10,000
3 $85,000 + $10,000 – $70,000
a. Assets and liabilities of the old partnership are to be valued at their book values as of June 30, except for the following:
• Accounts receivable amounting to $2,500 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 $76,600.
• Equipment is to be valued at $155,700.
b. Anderson is to purchase $70,000 of the ownership interest of Hollins for $75,000 cash and to contribute another $45,000 cash to the partnership for a total ownership equity of $115,000.
The post-closing trial balance of Moshref and Hollins as of June 30 is as follows:
Moshref and Hollins
Post-Closing Trial Balance
June 30, 2014
Debit
Balances
Credit
Balances
Cash 8,000
Accounts Receivable 42,500
Allowance for Doubtful Accounts 1,600
Merchandise Inventory 72,000
Prepaid Insurance 3,000
Equipment 180,500
Accumulated Depreciation—Equipment 43,100
Accounts Payable 21,300
Notes Payable (current) 35,000
Musa Moshref, Capital 120,000
Shaniqua Hollins, Capital 85,000
306,000 306,000
Instructions
1. Journalize the entries as of June 30 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 Musa Moshref and Shaniqua Hollins.
2. Journalize the additional entries to record Anderson’s entrance to the partnership on July 1, 2014.
3. Present a balance sheet for the new partnership as of July 1, 2014.
Answer:
1.
June 30 Asset Revaluations 2,900
Accounts Receivable 2,500
Allowance for Doubtful Accounts 400
[($42,500 – $2,500) × 5%] – $1,600.
30 Merchandise Inventory 4,600
Asset Revaluations 4,600
$76,600 – $72,000.
30 Accumulated Depreciation—Equipment 43,100
Equipment 24,800
Asset Revaluations 18,300
$155,700 – $180,500.
30 Asset Revaluations 20,000
Musa Moshref, Capital 10,000
Shaniqua Hollins, Capital 10,000
2. July 1 Shaniqua Hollins, Capital 70,000
Taylor Anderson, Capital 70,000
1 Cash 45,000
Taylor Anderson, Capital 45,000
3. MOSHREF, HOLLINS, AND ANDERSON
Balance Sheet
July 1, 2014
Assets
Current assets:
Cash1 $ 53,000
Accounts receivable $40,000
Less allowance for doubtful accounts 2,000 38,000
Merchandise inventory 76,600
Prepaid insurance 3,000
Total current assets $170,600
Plant assets:
Equipment 155,700
Total assets $326,300
Liabilities
Current liabilities:
Accounts payable $ 21,300
Notes payable 35,000
Total liabilities $ 56,300
Partners’ Equity
Musa Moshref, capital2 $130,000
Shaniqua Hollins, capital
3 25,000
Taylor Anderson, capital 115,000
Total partners’ equity 270,000
Total liabilities and partners’ equity $326,300
1 $8,000 + $45,000
2 $120,000 + $10,000
3 $85,000 + $10,000 – $70,000
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