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Carefully consider the post-closing trial balances of two proprietorships on January 1, 2017. &nbs

Carefully consider the post-closing trial balances of two proprietorships on January 1, 2017.

S Company L Company

$ $ $ $

Dr. Cr Dr Cr

Cash 14,000 12,000

Accounts Receivable 17,500 26,000

Allowances for doubtful debts 3,000 4,400

Inventory 26,500 18,400

Equipment 45,000 29,000

Accumulated Depreciation (Equipment) 24,000 11,000

Notes Payable 18,000 15,000

Accounts Payable 22,000 31,000

S Capital 36,000

L Capital 24,000

----------------- ----------- ----------- -----------

103,000 103,000 85400 85,400

----------------- ----------- ----------- -----------

S & L decide to form a partnership. Smart Partners, with the following agreed upon valuations for non-cash assets.

S Company L Company

Accounts Receivable $17,500 $26,000

Allowance for doubtful accounts 4,500 4,000

Inventory 28,000 20,000

Equipment 25,000 15,000

All cash will be transferred to the partnership and the partnership will assume all the liabilities of the two proprietorships. Further, it is agreed that S will invest an additional $5,000 in cash and L will invest an additional $19,000 in cash.

You are required to carry out the following tasks.

I Prepare separate journal entries to record the transfer of each proprietorship’s assets and liabilities to the partnership.

II Journalize the additional cash investments by each partner.

III Prepare a classified balance sheet for the partnership on January 1, 2017.

IV Discuss the differences between Sole-Proprietorship and Partnership

V Critically comment on the contributions of each partners to the new Partnership.

Expert Solution

1)

Particulars	Debit	Credit
Cash	14,000
Account Receivable	17,500
Merchandise Inventory	28,000
Equipment	23,000
Notes Payable		18,000
Accounts Payable		22,000
Allowance for Doubtful Account		4,500
S, Capital		38,000

Cash	12,000
Account Receivable	26,000
Merchandise Inventory	20,000
Equipment	16,000
Notes Payable		15,000
Accounts Payable		31,000
Allowance for Doubtful Account		4,000
L, Capital		24,000

2)

Particulars	Debit	Credit
Cash	5,000
S, Capital		5,000

Cash	19,000
L, Capital		19,000

3)

Balance Sheet
ASSETS
Current Assets
Cash ($14,000 + $12,000 + $5,000 + $19,000)		50,000
Accounts receivable ($17,500 + $26,000)	43,500
Less: Allowance for doubtful accounts ($4,500 + $4,000)	8,500	35,000
Merchandise inventory ($28,000 + $20,000)		48,000
Total current assets		133,000

Property, plant, and equipment
Equipment ($23,000 + $16,000)

Total assets

Liabilities and Owners’ Equity
Current liabilities
Notes payable ($18,000 + $15,000)		33,000
Accounts payable ($22,000 + $31,000)		53,000
Total current liabilities		86,000

Owners’ equity
S, Capital ($38,000 + $5,000)	43,000
L, , Capital ($24,000 + $19,000)	43,000
Total owners’ equity		86,000

Total liabilities and owners’ equity		172,000

4) A sole proprietorship is business owned by a single individual, a person who collects all the revenue from it, and maintains all liability for business debt. A partnership is business wherein two or more individuals are sharing the ownership, profit and liability for the debts of the company.

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