Admitting new partner
Anthony Simpson and Shawna Ryder have operated a successful firm for many years, sharing net income and net losses equally. Blaine Evans is to be admitted to the partnership on June 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 May 31, except for the following:
- Accounts receivable amounting to $3,400 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 $64,300.
- Equipment is to be valued at $88,000.
b. Evans is to purchase $32,000 of the ownership interest of Ryder for $37,500 cash and to contribute $40,000 cash to the partnership for a total ownership equity of $72,000.
The post-closing trial balance of Simpson and Ryder as of May 31 follows.
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Simpson and Ryder
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Post-Closing Trial Balance
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May 31, 2012
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Debit
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Credit
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Balances
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Balances
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Cash
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14,400
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Accounts Receivable
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21,400
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Allowance for Doubtful Accounts
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500
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Merchandise Inventory
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58,600
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Prepaid Insurance
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3,500
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Equipment
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97,000
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Accumulated Depreciation-Equipment
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25,700
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Accounts Payable
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14,700
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Notes Payable
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12,000
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Anthony Simpson, Capital
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80,000
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Shawna Ryder, Capital
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62,000
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194,900
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194,900
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Instructions
1. Journalize the entries as of May 31 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 Anthony Simpson and Shawna Ryder.
2. Journalize the additional entries to record Evans' entrance to the partnership on May 31, 2012.
3. Present a balance sheet for the new partnership as of June 1, 2012.