Question

Musa Moshref and Shaniqua Hollins have operated a successful firm for many years, sharing net income and net losses equally. Taylor Anderson is to be admitted to the partnership on July 1 of the current year, in accordance with the following agreement:

a.	Assets and liabilities of the old partnership are to be valued at their book values as of June 30, except for the following: • Accounts receivable amounting to $2,700 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts. • Merchandise inventory is to be valued at $77,300. • Equipment is to be valued at $156,500.
b.	Anderson is to purchase $70,800 of the ownership interest of Hollins for $75,000 cash and to contribute another $44,900 cash to the partnership for a total ownership equity of $115,700.

The post-closing trial balance of Moshref and Hollins as of June 30 is as follows:

Moshref and Hollins

POST-CLOSING TRIAL BALANCE

June 30, 2016

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash	8,000.00
2	Accounts Receivable	42,400.00
3	Allowance for Doubtful Accounts		1,785.00
4	Merchandise Inventory	71,900.00
5	Prepaid Insurance	2,800.00
6	Equipment	180,600.00
7	Accumulated Depreciation-Equipment		42,800.00
8	Accounts Payable		20,300.00
9	Notes Payable (current)		34,000.00
10	Musa Moshref, Capital		122,515.00
11	Shaniqua Hollins, Capital		84,300.00
12	Totals	305,700.00	305,700.00

	Required:
1.	Journalize the entries as of June 30 to record the revaluations, using a temporary account entitled Asset Revaluations. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Musa Moshref and Shaniqua Hollins.
2.	Journalize the additional entries to record Anderson’s entrance to the partnership on July 1, 2016. Refer to the Chart of Accounts for exact wording of account titles.
3.	Present a balance sheet for the new partnership as of July 1, 2016. Refer to the information given and the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries.

Answer 1

	Journal entries to record Revaluation
1	Asset Revaluation a/c Dr	2,700
	To Accounts Receivable		2,700
	(To write off $2,700 during revaluation)
2	Asset Revaluation a/c Dr	200
	To Allowance for doubtful accounts		200
	(To provide for additional allowance on A/R balance to bring the allowance to 5% of A/R)
	A/r balance	42,400
	Less: Amount w/off	2,700
	A/r balance	39,700
	5% Allowance on the above	1,985
	Balance in Allowance a/c	1,785
	Additional allowance required	200
3	Merchandise Inventory	5,400
	To Asset revaluation a/c		5,400
	(To record increase in value of Inventory)
4	Accumulated Depreciation Dr	42,800
	To Equipment a/c		42,800
	(To eliminate balance in accunulate depreciation a/c)
5	Equipment a/c Dr	18,700
	To Asset revaluation		18,700
	(To record increase in value of Equipment)
	Equipment as of Balance sheet date	180,600
	Less: A/D	42,800
	Equipment WDV	137,800
	Revalued amount of Equipment	156,500
	Increase in value	18,700
6	Asset Revaluation a/c dr	21,200
	To Musa Moshref, Capital		10,600
	To Shaniqua Hollins, Capital		10,600
	(To reclassify gain on revaluatio to existing partners capital in their profit sharing ratio)

Calculating profit in re-valuation:

Merchandise Inventory	5,400
Equipment	18,700
Accounts Receivable	(2,700)
Allowance for doubtful accounts	(200)
Gain on revaluation	21,200
Equally to each partner	10,600

2. Journal entries to record admission:

Cash account Dr	119,900
To Goodwill		4,200
To Anderson, Capital		115,700
(To record admission of Anderson)
Anderson paid 75,000 for 70,800 share of Hollins, there by generating a goodwill of $4,200
Goodwill A/c Dr	4,200
To Shaniqua Hollins, Capital		4,200
(To transfer goodwill to Hollins account)
Shaniqua Hollins, Capital	75,000
To Cash account		75,000
(To record payment to Hollins made by Anderson)

Moshref, Hollins and Anderson
Balance Sheet as of 30 June, 2016
Assets
Cash		52,900
Accounts receivable	39,700
Allowance for doubtful debts	1,985
Net Accounts receivable		37,715
Merchandize inventory		77,300
Prepaid Insurance		2,800
Total Current Assets		170,715
Fixed Assets
Equipment		156,500
Total Fixed Assets		156,500
Total Assets		327,215
Liabilties
Current Liabilities
Accounts Payable		20,300
Notes Payable		34,000
Total current liabilities		54,300
Musa Moshref, Capital		133,115
Shaniqua Hollins, Capital		24,100
Anderson, Capital		115,700
Total Liabilities		327,215

Changes in account balances:

Cash = 8,000+119,900-75000 = 52,900

A/R = 42.400-2,700 = 39,700

Allowance = 1,985

Capital accounts:

Anderson - 115,700

Musa Moshref = 122,515(Original balance)+10,600 (gain on reval)= 133,115

Shaniqua Hollins = 84,300 (Original balance)+10,600 (gain on reval)+4,200 (Goodwill paid by Anderson -75,000(Interest purchased by Anderson) = 24,100