Problem
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.