Question

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Entries and Balance Sheet for Partnership

On April 1, 20Y1, Whitney Lang and Eli Capri form a partnership. Lang agrees to invest $17,900 cash and merchandise inventory valued at $48,300. Capri invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total capital to $120,000. 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	$27,400		$22,200
Allowance for Doubtful Accounts	1,200		1,500
Merchandise Inventory	31,900		42,700
Equipment	53,700		52,100
Accumulated Depreciation-Equipment	17,900
Accounts Payable	9,700		9,700
Notes Payable (current)	5,900		5,900

The partnership agreement includes the following provisions regarding the division of net income: interest of 8% on original investments, salary allowances of $53,700 (Lang) and $32,800 (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 $454,000 and expenses were $297,000, for a net income of $157,000. The drawing accounts have debit balances of $55,000 (Lang) and $47,000 (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

1.a. Entry to record investment of W.Lang in the partnership
Date	Account Title	Debit	Credit
April1, 20Y1	Cash	17900
	Merchandise Inventory	48300
	W.Lang, Capital		66200
1.b. Entry to record investment of E.Capri in the partnership
Date	Account Title	Debit	Credit
April1, 20Y1	Accounts Receivable	22200
	Merchandise Inventory	42700
	Equpment	52100
	Allowance for doubtful accounts		1500
	Accounts Payable		9700
	Notes Payable		5900
	E.Capri		99900

2.

Lang and Capri
Balance Sheet
April 1, 20Y1
Assets
Current Assets
Cash		17900
Accounts Receivable	22200
Less: Allowance for doubtful accounts	1500	20700
Merchandise Inventory		91000
Total Current Assets		129600
Property, palnt and equipment:
Equipment		52100
Total Assets		181700
Liabilities
Current Liabilities
Accounts Payable		9700
Notes Payable		5900
Current liabilities		15600
Total liabilities		15600
Partner's Equity
W.Lang, Capital	66200
E.Capri, Capital	99900
Total Equity		166100
Total Liabilities and equity		181700

3.

3.a. Entry to cloe the revenue and expense accounts
Date	Account Title	Debit	Credit
Mar.31, 20Y2	Revenues	454000
	Expenses		297000
	Income Summary		157000
3.b. To record interest at 8% on original investments
Date	Account Title	Debit	Credit
Mar.31, 20Y2	Income Summary	13288
	W.Lang, Capital		5296
	E.Capri, Capital		7992
3.c. To record salary to partners
Date	Account Title	Debit	Credit
Mar.31, 20Y2	Income Summary	86500
	W.Lang, Capital		53700
	E.Capri, Capital		32800
Balance in income summary account = 157,000 - 13,288 - 86,500 = 57,212
3.d. To record sharing the balance of net income by the partners
Date	Account Title	Debit	Credit
Mar.31, 20Y2	Income Summary	57212
	W.Lang, Capital		28606
	E.Capri, Capital		28606
3.e. To record adjusting of drawing accounts to capital accounts
Date	Account Title	Debit	Credit
Mar.31, 20Y2	W.Lang, Capital	55000
	E.Capri, Capital	47000
	W.Lang, Drawings		55000
	E.Capri, Drawings		47000