Question

Entries and Balance Sheet for Partnership

On April 1, 20Y1, Whitney Lang and Eli Capri form a partnership. Lang agrees to invest $17,500 cash and merchandise inventory valued at $47,300. Capri invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total capital to $117,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:

	Capri's Ledger Balance		Agreed-Upon Balance
Accounts Receivable	$26,800		$21,700
Allowance for Doubtful Accounts	1,200		1,500
Merchandise Inventory	31,200		41,800
Equipment	52,500		50,900
Accumulated Depreciation-Equipment	17,500
Accounts Payable	9,500		9,500
Notes Payable (current)	5,800		5,800

The partnership agreement includes the following provisions regarding the division of net income: interest of 12% on original investments, salary allowances of $52,500 (Lang) and $32,000 (Capri), and the remainder equally.

Required:

1. Journalize the entries to record the investments of (1) Lang and (2) Capri in the partnership accounts. For a compound transaction, if an amount box does not require an entry, leave it blank.

	ACCOUNT	DEBIT	CREDIT
Apr. 1
Apr. 1

2. Prepare a balance sheet as of April 1, 20Y1, the date of formation of the partnership of Lang and Capri.

Lang and Capri Balance Sheet April 1, 20Y1
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			$

3. After adjustments at March 31, 20Y2, the end of the first full year of operations, the revenues were $426,000 and expenses were $283,000, for a net income of $143,000. The drawing accounts have debit balances of $50,000 (Lang) and $43,000 (Capri). Journalize the entries to close the revenues and expenses and the drawing accounts at March 31, 20Y2. For a compound transaction, if an amount box does not require an entry, leave it blank.

	ACCOUNT	DEBIT	CREDIT
Mar. 31
Mar. 31

Answer 1

Answer

1.

Date	Particular	Dr. $	Cr. $
1-Apr	Cash	17,500
	Inventory	47,300
	Lang's Capital		64,800
	(Being cash and inventory brought by Lang)
1-Apr	Accounts Receivable	21,700
	Inventory	41,800
	Equipment	50,900
	Cash (Bal.)	19,400
	Allowance for Doubtful debt		1,500
	Accounts Payable		9,500
	Notes Payable (Current)		5,800
	Capri Capital		117,000
	(Being assets and liabilities bought by Capri and remaining capital bought in cash)

2.

Assets
Current assets:
Cash (17,500 + 19,400)		36,900
Inventory (47,300 + 41,800)		89,100
Accounts Receivable	21,700
Less: Allowance for Doubtful debt	(1,500)	20,200
Total current assets		146,200
Property, plant, and equipment:		50,900
Total assets		197,100
Liabilities
Current liabilities:
Accounts Payable		9,500
Notes Payable (Current)		5,800
Total liabilities		15,300
Partners' Equity
Lang's Capital		64,800
Capri Capital		117,000
Total partners' equity		181,800
Total liabilities and partners' equity		197,100

3.

Date	Particular	Dr. $	Cr. $
31-Mar	Revenue	426,000
	Expenses		283,000
	Lang Capital		78,618
	Capri Capital		64,382
	(Being revenue and expense adjusted and income distributed)
31-Mar	Lang Capital	50,000
	Capri Capital	43,000
	Lang Drawing		50,000
	Capri Drawing		43,000
	(Being drawing adjusted through capital)

Profit to be distributed = Revenue – Expenses

= $426,000 – 283,000

= $143,000

	Lang	Capri
Salary Allowance	52,500	32,000
Interest on Investment	7,776	14,040
Remaining Income (1:1)	18,342	18,342
Net Transfer	78,618	64,382

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