Question

On April 1, 20Y1, Whitney Lang and Eli Capri form a partnership. Lang agrees to invest $10,900 cash and merchandise inventory valued at $29,400. Capri invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total capital to $73,000. 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	$16,700		$13,500
Allowance for Doubtful Accounts	700		900
Merchandise Inventory	19,400		26,000
Equipment	32,700		31,700
Accumulated Depreciation-Equipment	10,900
Accounts Payable	5,900		5,900
Notes Payable (current)	3,600		3,600

The partnership agreement includes the following provisions regarding the division of net income: interest of 10% on original investments, salary allowances of $32,700 (Lang) and $19,900 (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.

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

3. After adjustments at March 31, 20Y2, the end of the first full year of operations, the revenues were $450,000 and expenses were $348,000, for a net income of $102,000. The drawing accounts have debit balances of $36,000 (Lang) and $31,000 (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.

Answer 1