Question

1. Entries and Balance Sheet for Partnership

   On April 1, 20Y1, Whitney Lang and Eli Capri form a partnership. Lang agrees to invest $12,300 cash and merchandise inventory valued at $33,200. Capri invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total capital to $82,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:

   	Capri's Ledger Balance		Agreed-Upon Balance
   Accounts Receivable	$18,800		$15,200
   Allowance for Doubtful Accounts	800		1,000
   Merchandise Inventory	21,900		29,300
   Equipment	36,900		35,800
   Accumulated Depreciation-Equipment	12,300
   Accounts Payable	6,600		6,600
   Notes Payable (current)	4,100		4,100

   The partnership agreement includes the following provisions regarding the division of net income: interest of 10% on original investments, salary allowances of $36,900 (Lang) and $22,500 (Capri), and the remainder equally.

   Required:

   1. Journalize the entries to record the investments of (1) Lang and (2) Capri in the partnership accounts. For a compound transaction, if an amount box does not require an entry, leave it blank.

   	ACCOUNT	DEBIT	CREDIT
   Apr. 1
   Apr. 1

   2. Prepare a balance sheet as of April 1, 20Y1, the date of formation of the partnership of Lang and Capri.

   Lang and Capri Balance Sheet April 1, 20Y1
   Assets
   Current assets:
   Total current assets			$
   Property, plant, and equipment:
   Total assets			$
   Liabilities
   Current liabilities:
   		$
   Total liabilities			$
   Partners' Equity
   		$
   Total partners' equity
   Total liabilities and partners' equity			$

   3. After adjustments at March 31, 20Y2, the end of the first full year of operations, the revenues were $400,000 and expenses were $293,000, for a net income of $107,000. The drawing accounts have debit balances of $37,000 (Lang) and $32,000 (Capri). Journalize the entries to close the revenues and expenses and the drawing accounts at March 31, 20Y2. For a compound transaction, if an amount box does not require an entry, leave it blank.

   	ACCOUNT	DEBIT	CREDIT
   Mar. 31
   Mar. 31

Answer 1

Answer 1

In the books of Partnership

          Journal Entries

Date	Particulars	Debit ($)	Credit ($)
Apr 1	Cash A/C                                                                            DR.	12,300
	Merchandising Inventory A/C                                       DR.	33,200
	To Whitney Lang’ Capital A/C		45,500
	(Being cash and merchandising inventory invested by Whitney Lang)
Apr 1	Cash A/C                                                                          DR.	13,400
	Accounts Receivable A/C                                              DR.	15,200
	Merchandising Inventory A/C                                      DR.	29,300
	Equipment A/C                                                               DR.	35,800
	To Allowance for Doubtful Accounts A/C		1,000
	To Accounts payable A/C		6,600
	To Notes payable		4,100
	To Eli Capri’s Capital A/C		82,000
	(Being Capri invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes cash)

Answer 2

LANG AND CAPRI                                                               Balance Sheet                                                               April 1,20Y1
Assets
Current Assets:
Cash		$ 25,700
Accounts Receivable	$ 15,200
Less allowance for doubtful debts	1,000	14,200
Merchandise Inventory		62,500
Total current assets			$ 102,400
Plant assets:
Equipment		35,800
Total assets			$ 138,200
Liabilities
Current Liabilities
Accounts payable		$ 6,600
Notes payable		4,100
Total liabilities			$ 10,700
Partners’ Equity
Whitney Lang, capital		$ 45,500
Eli Capri, Capital		82,000
Total Partners’ Equity			$ 127,500
Total liabilities and partners’ equity			$ 138,200

Answer 3

Date	Account	Debit ($)	Credit ($)
Mar 31	Income Summary                                                            DR.	107,000
	To Whitney Lang’s Capital A/C		58,875
	To Eli Capri’ Capital A/C		48,125
	(Being profit distributed)
Mar 31	Whitney Lang’s Capital A/C                                           DR.	37,000
	Eli Capri’ Capital A/C                                                       DR.	32,000
	To Whitney Lang’s Drawings A/C		37,000
	To Eli Capri’ Drawings A/C		32,000
	(Being drawings made)

Computations:

	Lang ($)	Capri ($)	Total ($)
Interest Allowance	4,550 ($ 45,500 x 10%)	8,200 ($ 82,000 x 10%)	12,750
Salary allowance	36,900	22,500	59,400
Remaining Income	17,425	17,425	34,850
Net Income	58,875	48,125	107,000