Question

On March 1, 20Y8, Eric Keene and Renee Wallace form a partnership. Keene agrees to invest $21,060 in cash and merchandise inventory valued at $56,290. Wallace invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $59,950. 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	$17,770
Allowance for Doubtful Accounts	1,580	1,950
Equipment	83,230	54,190
Accumulated Depreciation	30,260	–
Accounts Payable	14,910	14,910
Notes Payable (current)	35,970	35,970

The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,660 (Keene) and $30,270 (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 $293,150 and expenses were $203,500, for a net income of $89,650. The drawing accounts have debit balances of $27,600 (Keene) and $30,800 (Wallace). Journalizethe 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

1.

General Journal	Debit	Credit
Cash	$21,060
Merchandise inventory	56,290
Eric Keene's Capital		$77,350
(To record investment made by Eric Keene as capital contribution)
Accounts receivable	$17,770
Equipment	54,190
Cash (Liabilities - Assets) (balancing figure)	40,820
Allowance for doubtful accounts		$1,950
Accounts payable		14,910
Notes payable (current)		35,970
Reene Wallace's capital		59,950
(To record capital contribution by Reene wallace)

2.

KEENE AND WALLACE Balance Sheet March 1, 20Y8
Assets
Current Assets
Cash (21,060 + 40,820)	$61,880
Accounts Receivable Less Allowance	15,820
Merchandise inventory	56,290
Total current assets		$133,990
Property, plant and Equipment
Equipment	54,190	54,190
Total Assets			$188,180
Liabilities
Current Liabilities
Accounts Payable	14,910
Notes Payable	35,970
Total liabilities		50,880
Partner's Equity
Eric Keene's capital	77,350
Renee Wallace's capital	59,950
Total partner's equity		137,300
Total liabilities and partner's equity			188,180

3.

Working note:

Statement showing distribution of net income among partner's:

Particulars	Eric keene	Reene wallace	Total
Net income			$89,650
Interest on capital 10%	$7,735 (77,350*10%)	$5,995 (59,950*10%)	-13,730
Salary allowance	22,660	30,270	-52,930
Remaining net income	11,495	11,495	22,990
Total	41,890	47,760

General Journal	Debit	Credit
Revenues	$293,150
Expenses		$203,500
Eric keene's capital		41,890
Reene wallace's capital		47,760
Eric keene's capital	$27,600
Reene wallace's capital	30,800
Eric keene's Drawing		$27,600
Reene wallace Drawing		30,800