Question

On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $21,550 in cash and merchandise inventory valued at $55,670. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,190. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:

	Wallace’s Ledger	Agreed-Upon
	Balance	Valuation
Accounts Receivable	$18,650	$17,790
Allowance for Doubtful Accounts	1,560	1,820
Equipment	83,430	55,140
Accumulated Depreciation	29,580	–
Accounts Payable	15,350	15,350
Notes Payable (current)	35,500	35,500

The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,170 (Keene) and $30,810 (Wallace), and the remainder equally.

	Required:
1.	Journalize the entries on March 1 to record the investments of Keene and Wallacein the partnership accounts.*
2.	Prepare a balance sheet as of March 1, 20Y8, the date of formation of the partnership of Keene and Wallace.*
3.	After adjustments at February 28, 20Y9, the end of the first full year of operations, the revenues were $294,170 and expenses were $204,500, for a net income of $89,670. The drawing accounts have debit balances of $27,510 (Keene) and $30,160 (Wallace). Journalize the entries to close the revenues and expenses and the drawing accounts at February 28, 20Y9.* *Refer to the Chart of Accounts and the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries.

Answer 1

Ans. 1) Journal Entries

Date	Particulars	Debit ($)	Credit ($)
1. March 20Y8	Bank A/c Dr. Inventory A/c Dr. To Eric Keene Capital A/c   ( Being Cash and Inventory received from Eric Keene as capital contribution)	21,550 55,670	77220
1. March 20Y8	Bank A/c Dr.    Equipment A/c Dr. Account Receivable A/c Dr. To Account Payable A/c To Notes Payable A/c To Allowance for Doubtful A/c To Renee Wallace Capital A/c ( being Capital Contribution by Renee Wallace in form of Assets, cash and Liabilities)	39,930 55,140 17,790	15,350 35,500 1820 60,190

b)

Balance sheet as on 1 March 20Y8
Particulars		Amount($)
Partners Capital A/c
Eric Keene	77220
Renee Wallace	60,190
		137,410
Current Liabilities
Account Payable		15350
Notes Payable		35500
Allowance for doubtful Debts		1820
Total		190080
Assets
Equipment		55140
Account receivable		17790
Inventory		55670
Cash (21550+39930)		61480
Total		190080

c) Journal Entries

Date	Particulars	Debit ($)	Credit ($)
28.Feb 20Y8	Revenue A/c Dr. To Expenses A/c To Profit & Loss A/c ( Being Revenue and Expenses posted to Profit & loss A/c)	294,170	204,500 89,670
28.Feb 20Y8	Eric Keene Capital A/c Dr. Renee Wallace Capital A/c Dr. To Cash A/c ( Being Drawing from Capital A/c recorded)	27,510 30,160	57,670