Question

Admitting New Partner

Brian Caldwell and Adriana Estrada have operated a successful firm for many years, sharing net income and net losses equally. Kris Mays is to be admitted to the partnership on September 1 of the current year, in accordance with the following agreement:

1. Assets and liabilities of the old partnership are to be valued at their book values as of August 31, except for the following:
   1. Accounts receivable amounting to $2,000 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
   2. Merchandise inventory is to be valued at $51,600.
   3. Equipment is to be valued at $113,000.
2. Mays is to purchase $49,000 of the ownership interest of Estrada for $53,000 cash and to contribute another $26,000 cash to the partnership for a total ownership equity of $75,000.

The post-closing trial balance of Caldwell and Estrada as of August 31 is as follows:

Caldwell and Estrada
Post-Closing Trial Balance
August 31, 20Y9
	Debit Balances		Credit Balances
Cash	5,100
Accounts Receivable	31,400
Allowance for Doubtful Accounts			1,200
Merchandise Inventory	48,200
Prepaid Insurance	1,800
Equipment	131,000
Accumulated Depreciation—Equipment			40,600
Accounts Payable			6,600
Notes Payable (current)			32,100
Brian Caldwell, Capital			73,000
Adriana Estrada, Capital			64,000
	217,500		217,500

Required:

1. Journalize the entries as of August 31 to record the revaluations, using a temporary account entitled Asset Revaluations. Debits and credits to the Asset Revaluation account are losses and gains from revaluation, respectively. 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.

For a compound transaction, if an amount box does not require an entry, leave it blank.

Aug. 31-Accounts Receivable	Asset Revaluations
	Accounts Receivable
	Allowance for Doubtful Accounts
Aug. 31-Merchandise Inventory	Merchandise Inventory
	Asset Revaluations
Aug. 31-Equipment	Accumulated Depreciation-Equipment
	Equipment
	Asset Revaluations
Aug. 31-Close

2. Journalize the additional entries to record Mays's entrance to the partnership on September 1, 20Y9.

September 1-purchase
September 1-contribution

3. Present a balance sheet for the new partnership as of September 1, 20Y9.

Caldwell, Estrada, and Mays
Balance Sheet
September 1, 20Y9
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			$

Answer 1

1
Date	Account Name	Debit	Credit
31-Aug	Revaluation reserve	2,400
	Accounts Receivable		1,500
	Allowance for doubtfull Debts		900
31-Aug	Inventory	4,300
	Revaluation reserve		4,300
31-Aug	Revaluation reserve	3,000
	Equipment		3,000
31-Aug	Brian Capital	550
	Adrian capital	550
	Revaluation reserve		1,100

2
Date	Account Name	Debit	Credit
1-Sep	Adrian capital	26,000
	May's Capital		26,000
1-Sep	Cash	32,000
	May's Capital		32,000

Trial Balance
	Amount	Transaction	Closing
Cash	12,300	32,000	44,300
Accounts Receivable	19,500	(1,500)	18,000
Allwance for doubtful debts	(600)	(900)	(1,500)
Merchandise Inventory	42,500	4,300	46,800
Prepaid Insurance	1,200		1,200
Equipment	67,500	(3,000)	64,500
Accumulated Depreciation	(15,500)		(15,500)
Accounts Payable	(8,900)		(8,900)
Notes Payable	(15,000)		(15,000)
Brian Capital	(55,000)	550	(54,450)
Adrian capital	(48,000)	26,550	(21,450)
Mays Capital		(58,000)	(58,000)
		-	-

Balancesheet
Assets
Current Assets		44,300
Cash
Accounts Receivable	18,000
Allwance for doubtful debts	(1,500)	16,500
Merchandise Inventory		46,800
Prepaid Insurance		1,200
Total Current Assets			108,800
Property, Plant , Equipment
Equipment		64,500	49000
Total Assets			157,800
Liabilities
Current Liability
Accounts Payable		8,900
Notes Payable		15,000
Total Liabilities			23,900
Partner's Equity
Brian Capital		54,450
Adrian capital		21,450
Mays Capital		58,000
Total Partner's Equity			133,900
Total Liabilities & Partner's Equity			157,800