On March 1, 2016, Eric Keene and Abigail McKee form a partnership. Keene agrees
ID: 2427804 • Letter: O
Question
On March 1, 2016, Eric Keene and Abigail McKee form a partnership. Keene agrees to invest $21,100 in cash and merchandise inventory valued at $55,900. McKee invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
McKee’s Ledger Agreed-Upon
Balance Valuation
Accounts Receivable $18,900 $18,000
Allowance for Doubtful Accounts 1,200 1,500
Equipment 83,500 54,900
Accumulated Depreciation 29,800 –
Accounts Payable 15,000 15,000
Notes Payable (current) 36,000 36,000
The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,500 (Keene) and $30,400 (McKee), and the remainder equally.
Required:
1. Journalize the entries on March 1 to record the investments of Keene and McKee in the partnership accounts.*
2. Prepare a balance sheet as of March 1, 2016, the date of formation of the partnership of Keene and McKee.*
3. After adjustments and the closing of revenue and expense accounts at February 28, 2017, the end of the first full year of operations, the income summary account has a credit balance of $90,000, and the drawing accounts have debit balances of $28,000 (Keene) and $30,400 (McKee). Journalize the entries on February 28 to close the income summary account and the drawing accounts at February 28, 2017.*
Explanation / Answer
1. a cash Dr.$21100
Inventory Dr. $55900
To keene's capital 77000
b cash (Balancing figure) Dr.69400
Accounts receivable Dr.$18000
Equipment Dr.$54900
To Allowance for Doubtful debt 1500
To Accumulated Depreciation 29800
To Accounts payable 15000
To Notes payable 36000
To McKee's capital 60000