Question

Entries and Balance Sheet for Partnership

On April 1, 20Y1, Whitney Lang and Eli Capri form a partnership. Lang agrees to invest $18,000 cash and merchandise inventory valued at $50,000. 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	$45,700		$43,400
Allowance for Doubtful Accounts	3,200		3,500
Merchandise Inventory	31,500		28,900
Equipment	89,500		63,400
Accumulated Depreciation—Equipment	19,000
Accounts Payable	23,400		23,400
Notes Payable (current)	15,000		15,000

The partnership agreement includes the following provisions regarding the division of net income: interest of 10% on original investments, salary allowances of $36,000 (Lang) and $22,000 (Capri), and the remainder equally.

Required:

1. Journalize the entries to record the investments of Lang and 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 $598,000 and expenses were $480,000, for a net income of $118,000. The drawing accounts have debit balances of $40,000 (Lang) and $30,000 (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.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1-Apr	Cash	18,000.00
	Merchandise Inventory	50,000.00
	Whitney Lang, Capital		68,000.00
	(To record the Lang Investment)
1-Apr	Cash	26,200.00
	Accounts Receivable	43,400.00
	Merchandise Inventory	28,900.00
	Equipment	63,400.00
	Allowance for Doubtful Accounts		3,500.00
	Accounts Payable		23,400.00
	Notes Payable		15,000.00
	Eli Capri, Capital		120,000.00
	(To record the Capri Investment)

Answer 2.
Lang and Capri
Balance Sheet
April 1, 20Y1
Assets
Current Assets
Cash		44,200.00
Accounts Receivable	43,400.00
Allowance for Doubtful Accounts	(3,500.00)	39,900.00
Merchandise Inventory		78,900.00
Total Current Assets			163,000.00
Property, Plant & Equipment
Equipment			63,400.00
Total Assets			226,400.00
Liabilities & Partners' Equity
Liabilities
Current Liabilities
Accounts Payable		23,400.00
Notes Payable		15,000.00
Total Current Liabilities			38,400.00
Other Liabilities			-
Total Liabilities			38,400.00
Partners' Equity
Whitney Lang, Capital		68,000.00
Eli Capri, Capital		120,000.00
Total Partners' Equity			188,000.00
Total Liabilities & Partners' Equity			226,400.00

Answer 3.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Mar	Income Summary	118,000.00
	Whitney Lang, Capital		63,400.00
	Eli Capri, Capital		54,600.00
	(to record the distribution of Net Income)
31-Mar	Whitney Lang, Capital	40,000.00
	Eli Capri, Capital	30,000.00
	Whitney Lang, Drawing		40,000.00
	Eli Capri, Drawing		30,000.00
	(Tor record the drawings transf. to capital)

Statement of Distribution of Income
	Whitney Lang, Capital	Eli Capri, Capital	Total
Net Income			118,000.00
Interest on capital - 10%	6,800.00	12,000.00	18,800.00
Salary Allowances	36,000.00	22,000.00	58,000.00
Balance			41,200.00
Profit - Divide Equally	20,600.00	20,600.00	41,200.00
Total Profit	63,400.00	54,600.00