Blake Kredell owns and operates a retail business called Blake’s Camera Shop. His post closing trial...

Blake Kredell owns and operates a retail business called Blake’s Camera Shop. His post closing trial balance on December 31, 2019, is provided below. Blake plans to enter into a partnership with Carmen Santos, effective January 1, 2020. Profits and losses will be shared equally. Blake will transfer all assets and liabilities of his store to the partnership, after revaluation. Santos will invest cash equal to Blake’s investment after revaluation. The agreed values are: Accounts Receivable (net), $25,500; Merchandise Inventory, $45,000; and Store Equipment, $26,000.

The partnership will operate under the name Picture Perfect.

BLAKE’S CAMERA SHOP Post closing Trial Balance December 31, 2019
ACCOUNT NAME		DEBIT		CREDIT
Cash	$	24,000	$
Accounts Receivable		26,000
Allowance for Doubtful Accounts				700
Merchandise Inventory		44,000
Store Equipment		30,000
Accumulated Depreciation-Store Equip.				26,000
Accounts Payable				23,000
Blake Kredell, Capital				74,300
Totals	$	124,000	$	124,000

Record each partner’s investment in a general journal.
Prepare a balance sheet for Picture Perfect after the investments.

Expert Solution

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Notes:

In this question accounts receivable after deducting allowance for doubtful debt that is $26000 - $700 net amount is $25300 so in revaluation account profit of $ 200 is taken as agreed net amount is $25500 so (25500-25300=200) therefore profit is of $200
As inventory in trial balance is $44000 and agreed amount of revaluation is $45000 so profit in revaluation account of $1000.
As store equipment is $30000 in trial balance and accumulated depreciation is $26000 so net amount is $4000 and agreed value of equipment is $26000 so there is a profit in revaluation account of $ 22000.
As capital of blake is $74300 in trial balance so in partners capital account its taken as balance brought down and its profit on revaluation is taken only to his account as this profit is from revaluation of his assets and liabilities so right on this profit is only of blakes and not of Santos.
Blake investment is $74300 his own capital and revaluation profit $23200 so his total investment in partnership firm is $97500 so the Santos agreed to bring cash equal to investment of Blake's after revaluation so he bring $97500 as his investment in firm.

Thank you feel free to ask any query related to this question.

ekkarill92 answered 2 years ago

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