Question

On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $21,300 in cash and merchandise inventory valued at $56,390. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $59,940. 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	$18,470	$17,510
Allowance for Doubtful Accounts	1,130	1,420
Equipment	83,500	54,650
Accumulated Depreciation	29,900	–
Accounts Payable	14,810	14,810
Notes Payable (current)	36,170	36,170

The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,330 (Keene) and $30,500 (Wallace), and the remainder equally.

	Required:
1.	Journalize the entries on March 1 to record the investments of Keene and Wallacein the partnership accounts.*
2.	Prepare a balance sheet as of March 1, 20Y8, the date of formation of the partnership of Keene and Wallace.*
3.	After adjustments at February 28, 20Y9, the end of the first full year of operations, the revenues were $303,250 and expenses were $212,900, for a net income of $90,350. The drawing accounts have debit balances of $27,850 (Keene) and $30,820 (Wallace). Journalizethe entries to close the revenues and expenses and the drawing accounts at February 28, 20Y9.* *Refer to the Chart of Accounts and the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. CHART OF ACCOUNTSKeene and WallaceGeneral Ledger ASSETS 110 Cash 112 Accounts Receivable 113 Allowance for Doubtful Accounts 116 Merchandise Inventory 117 Office Supplies 119 Prepaid Insurance 120 Land 123 Equipment 124 Accumulated Depreciation-Equipment LIABILITIES 210 Accounts Payable 211 Notes Payable 212 Interest Payable 213 Sales Tax Payable EQUITY 310 Renee Wallace, Capital 311 Renee Wallace, Drawing 312 Eric Keene, Capital 313 Eric Keene, Drawing REVENUE 410 Revenues EXPENSES 510 Expenses 521 Advertising Expense 522 Depreciation Expense-Equipment 529 Selling Expenses 533 Insurance Expense 534 Office Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Bad Debt Expense 539 Miscellaneous Expense Journalize the entries on March 1 to record the investments of Keene and Wallacein the partnership accounts. Refer to the Chart of Accounts for exact wording of account titles. PAGE 5 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3 4 5 6 7 8 9 10 3. After adjustments at February 28, 20Y9, the end of the first full year of operations, the revenues were $303,250 and expenses were $212,900, for a net income of $90,350. The drawing accounts have debit balances of $27,850 (Keene) and $30,820 (Wallace). Journalizethe entries to close the revenues and expenses and the drawing accounts at February 28, 20Y9. Refer to the Chart of Accounts for exact wording of account titles. If required, round your answers to two decimal places. PAGE 20 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Closing Entries 2 3 4 5 6 7 8 9 2. Prepare a balance sheet as of March 1, 20Y8, the date of formation of the partnership of Keene and Wallace. Refer to the Chart of Accounts and the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Enter current assets in order of liquidity. “Less”, “Add”, or colons (:) will automatically appear if required. Keene and Wallace Balance Sheet March 1, 20Y8 1 Assets 2 3 4 5 6 7 8 9 10 11 Liabilities 12 13 14 15 16 Partners’ Equity 17 18 19 20

Answer 1

Solution:

1. Mar. 1

Cash......................................21,300

Merchandise Inventory .........56,390

Eric Keene, Capital.............................77,690

Cash .......................................40,180

Accounts Receivable ..............17,510

Equipment................................54,650

Allowance for Doubtful Accounts.....................1,420

Accounts Payable ...........................................14,810

Notes Payable .................................................36,170

Renee Wallace, Capital...................................59,940

2.

Assets

Current assets: Cash                                     $ 61,480

Accounts receivable                         $ 17,510

Less allowance for doubtful accounts 1,420   16,090

Merchandise inventory                                     56,390

Total current assets                                      $ 133,960

Plant assets: Equipment                                   54,650

Total assets                                                  $ 188,610

Liabilities

Current liabilities:

Accounts payable                          $ 14,810

Notes payable                                   36,170

Total liabilities $ 50,980

Partners' Equity

Eric Keene, capital                           $ 77,690

Renee Wallace, capital                       59,940

Total partners' equity 137,630

Total liabilities and partners' equity                          $ 188,610

3.

Feb. 28 Income Summary …………. 90,350

                Eric Keene, Capital …………………41,977.5

                Renee Wallace, Capital …………… 48,372.5

28 Eric Keene, Capital …… 27,850

Renee Wallace, Capital……30,820

        Eric Keene, Drawing…………….….. 27,850

       Renee Wallace, Drawing ……………30,820

Schedule:                            Keene       Wallace

Total Interest allowance     $ 7,769      $ 5,994   $ 13,763

Salary allowance                 22,330       30,500      52,830

Remaining income              11,878.5      11,878.5   23,757

Net income                        $ 41,977.5    $48,372.5 $ 90,350