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 $2,800 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 $70,600.
   3. Equipment is to be valued at $154,400.
2. Mays is to purchase $67,000 of the ownership interest of Estrada for $73,000 cash and to contribute another $36,000 cash to the partnership for a total ownership equity of $103,000.

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	7,000
Accounts Receivable	43,000
Allowance for Doubtful Accounts			1,600
Merchandise Inventory	66,000
Prepaid Insurance	2,400
Equipment	179,000
Accumulated Depreciation—Equipment			55,500
Accounts Payable			9,300
Notes Payable (current)			44,000
Brian Caldwell, Capital			100,000
Adriana Estrada, Capital			87,000
	297,400		297,400

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
Aug. 31-Merchandise Inventory
Aug. 31-Equipment
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