Question

Wendy Reichstein and Sonia Datta operate separate auto repair shops. On January 15, 2021, they decided to combine their businesses, which had been operated as proprietorships, to form Wendy & Sonia Auto Repair, a partnership. Information from their separate balance sheets is presented below:

		Wendy Auto Repair		Sonia Auto Repair
Cash		$8,300		$1,600
Accounts receivable		7,400		32,100
Allowance for doubtful accounts		800		1,500
Accounts payable		3,900		8,500
Notes payable		-		15,000
Salaries payable		-		1,100
Equipment		8,700		28,000
Accumulated depreciation - equipment		2,200		16,000

It is agreed that the expected realizable value of Wendy's accounts receivable is $4,900 and Sonia's receivables is $29,400. The fair market value of Wendy's equipment is $7,100 and Sonia's equipment is $9,500. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the note payable on Sonia's balance sheet, which she will pay herself.

Prepare the journal entries necessary to record the formation of the partnership. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 15, 2021	Salaries PayableAccounts PayableW. Reichstein, CapitalAllowance for Doubtful AccountsEquipmentCashS. Datta, CapitalAccounts Receivable
	Accounts PayableS. Datta, CapitalEquipmentAllowance for Doubtful AccountsW. Reichstein, CapitalCashAccounts ReceivableSalaries Payable
	Accounts ReceivableCashEquipmentSalaries PayableW. Reichstein, CapitalS. Datta, CapitalAllowance for Doubtful AccountsAccounts Payable
	Accounts ReceivableAllowance for Doubtful AccountsSalaries PayableAccounts PayableW. Reichstein, CapitalCashEquipmentS. Datta, Capital
	Allowance for Doubtful AccountsAccounts ReceivableAccounts PayableSalaries PayableW. Reichstein, CapitalS. Datta, CapitalCashEquipment
	Allowance for Doubtful AccountsAccounts PayableCashW. Reichstein, CapitalEquipmentSalaries PayableAccounts ReceivableS. Datta, Capital
	(To record Wendy's auto repair)
Jan. 15, 2021	W. Reichstein, CapitalEquipmentSalaries PayableAllowance for Doubtful AccountsAccounts ReceivableS. Datta, CapitalCashAccounts Payable
	EquipmentSalaries PayableAccounts PayableS. Datta, CapitalAccounts ReceivableCashAllowance for Doubtful AccountsW. Reichstein, Capital
	S. Datta, CapitalAccounts PayableAllowance for Doubtful AccountsEquipmentW. Reichstein, CapitalCashAccounts ReceivableSalaries Payable
	Salaries PayableW. Reichstein, CapitalS. Datta, CapitalEquipmentAllowance for Doubtful AccountsAccounts PayableAccounts ReceivableCash
	Accounts ReceivableSalaries PayableCashS. Datta, CapitalW. Reichstein, CapitalAllowance for Doubtful AccountsEquipmentAccounts Payable
	S. Datta, CapitalW. Reichstein, CapitalAccounts ReceivableAccounts PayableCashAllowance for Doubtful AccountsSalaries PayableEquipment
	Salaries PayableAccounts PayableS. Datta, CapitalEquipmentW. Reichstein, CapitalAccounts ReceivableAllowance for Doubtful AccountsCash
	(To record Sonia's auto repair)

Answer 1

Answer:

Date	General Journal	Debit	Credit
Jan. 15, 2021	Cash	8,300
	Accounts receivable	7,400
	Equipment	7,100
	Allowance for doubtful accounts		2,500
	Accounts payable		3,900
	W. Reichstein, Capital		16,400
	To record Wendy's auto repair
Jan. 15, 2021	Cash	1,600
	Accounts receivable	32,100
	Equipment	9,500
	Allowance for doubtful accounts		2,700
	Salaries payable		1,100
	Accounts payable		8,500
	S. Datta, Capital		30,900
	To record Sonia's auto repair

Calculation:

To prepare the entries for the formation of the partnership of both Wendy Reichstein and Sonia Datta, we need to debit what the both parties bring to business and credit what liabilities and the capital of both. So we need to post two entries. Since, Wendy Reichstein brings in cash of 8,300,  Accounts receivable of 7,400, and  Equipment with fair market value of $7,100 need to be debited. And then credit the Accounts payable of 3,900. Here there is an increase in the Allowance for doubtful accounts as the expected realizable value of Wendy's accounts receivable is $4,900.

So new Allowance for doubtful accounts = (7400 - 4900) = 2,500

Then the W. Reichstein, Capital = 8,300 + $7,400 + $7,100 - $2,500 - $3,900 = $16,400

Sonia Datta brings in cash of 1,600,  Accounts receivable of 32,100, and  Equipment with fair market value of $9,500 need to be debited. And then credit the Accounts payable of 8,500 and Salaries payable of 1,100.

We dont take notes payable of Sonia into consideration, as new partnership will assume all liabilities of the proprietorships with the exception of the note payable on Sonia's balance sheet.

Here there is an increase in the Allowance for doubtful accounts as the expected realizable value of Wendy's accounts receivable is $29,400.

So new Allowance for doubtful accounts = (32,100 - 29,400) = 2,700

Then the S. Datta, Capital = 1,600 + $32,100 + $9,500 - $2,700 - 1,100 - 8,500 = $30,900