Question

On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $20,900 in cash and merchandise inventory valued at $55,950. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,390. 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	$19,370	$18,480
Allowance for Doubtful Accounts	1,240	1,520
Equipment	83,050	54,330
Accumulated Depreciation	29,920	–
Accounts Payable	14,980	14,980
Notes Payable (current)	35,860	35,860

The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,800 (Keene) and $30,590 (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 $298,300 and expenses were $208,700, for a net income of $89,600. The drawing accounts have debit balances of $27,870 (Keene) and $30,730 (Wallace). Journalizethe entries to close the revenues and expenses and the drawing accounts at February 28, 20Y9.*

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1-Mar	Cash	20,900.00
	Merchandise Inventory	55,950.00
	Eric Keene, Capital		76,850.00
	(To record the Eric Investment)
1-Mar	Cash	39,940.00
	Accounts Receivable	18,480.00
	Equipment	54,330.00
	Allowance for Doubtful Accounts		1,520.00
	Accounts Payable		14,980.00
	Notes Payable		35,860.00
	Renee Wallace, Capital		60,390.00
	(To record the Wallace Investment)

Answer 2.
Keene and Wallace
Balance Sheet
March 1, 20Y8
Assets
Current Assets
Cash		60,840.00
Accounts Receivable	18,480.00
Allowance for Doubtful Accounts	(1,520.00)	16,960.00
Merchandise Inventory		55,950.00
Total Current Assets			133,750.00
Property, Plant & Equipment
Equipment			54,330.00
Total Assets			188,080.00
Liabilities & Partners' Equity
Liabilities
Current Liabilities
Accounts Payable		14,980.00
Notes Payable		35,860.00
Total Current Liabilities			50,840.00
Other Liabilities			-
Total Liabilities			50,840.00
Partners' Equity
Eric Keene, Capital		76,850.00
Renee Wallace, Capital		60,390.00
Total Partners' Equity			137,240.00
Total Liabilities & Partners' Equity			188,080.00

Answer 3.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
Feb-28, 20Y9	Revenues	298,300.00
	Income Summary		298,300.00
	(To record the close of revenues accounts)
Feb-28, 20Y9	Income Summary	208,700.00
	Expenses		208,700.00
	(To record the close of expenses accounts)
Feb-28, 20Y9	Income Summary	89,600.00
	Eric Keene, Capital		41,728.00
	Renee Wallace, Capital		47,872.00
	(to record the distribution of Net Income)
Feb-28, 20Y9	Eric Keene, Capital	27,870.00
	Renee Wallace, Capital	30,730.00
	Eric Keene, Drawing		27,870.00
	Renee Wallace, Drawing		30,730.00
	(Tor record the drawings transf. to capital)

Statement of Distribution of Income
	Eric Keene, Capital	Renee Wallace, Capital	Total
Net Income			89,600.00
Interest on capital - 10%	7,685.00	6,039.00	13,724.00
Salary Allowances	22,800.00	30,590.00	53,390.00
Balance			22,486.00
Profit - Divide Equally	11,243.00	11,243.00	22,486.00
Total Profit	41,728.00	47,872.00