Partner investments; journal entries. The LP partnership was formed on January 1
ID: 2362987 • Letter: P
Question
Partner investments; journal entries. The LP partnership was formed on January 1, 19X7, by investments from Bill Levy and Marv Parcells. Levy contributed $30,000 cash and $80,000 of land. Parcells contributed various assets from a business that he had operated over the past five years. A balance sheet from that business disclosed the following: Accounts receivable $ 27,000 Allowance for uncollectible (3,200) Equipment 68,000 Accumulated depreciation (24,000) The partners confirmed that the allowance for uncollectible accounts should be decreased by $600. In addition, an independent appraisal determined that fair market values of the land and equipment on January 1 were $125,000 and $35,000, respectively. Prepare the journal entries needed to record the investments of Levy and Parcells.Explanation / Answer
Step1. Identify the accounts involved in the transaction. For example the accounts involved in the above transactions are........ Transaction no.1................. Capital account, cash account Transaction no.2................. Building account, Cash account Transaction no. 3................ Furniture account, Furnituremart ltd. Transaction no. 4................ Purchases account, Cash account Transaction no. 5................ Transportation expenses account, Cash account Transaction no. 6. .............. Commission account, Cash account Identification of accounts involved in the transaction requires a lot of practice. With proper practice you would feel it easy identify the accounts. Step 2. Classify the accounts into Personal, Real or Nominal. Personal accounts------------ Accounts related to persons(natural or artificial). Real accounts------------------ Accounts related to assets. Nominal accounts------------- Accounts related to incomes and expenditures. Step 3. Apply the following rules......... Type of account Rule for Debit or Credit Personal Debit the Receiver, Credit the Giver. Real Debit what comes in, Credit what goes out. Nominal Debit all the Expenses and Losses, Credit all the Incomes and Gains. Now we will discuss each transaction mentioned above and make journal entries