On June 1, 2009, Kevin Schmidt and David Cochran form a partnership. Schmidt agrees to invest $12,000 cash and merchandise inventory valued at $32,000. Cohen invests certain business assets at valuations agreed upon, transers business liabilities , and contributes sufficicent cash to bring his total capital to $80,000. Details regarding the book values of the business assets and liabilites, and the agreed valuations follow:
- Cochen's Ledger Bal. Agreed-Upon Bal.
- Accounts Receivable $18,400 $14,900
- Allowance for Doubtful Accounts 800 1,000
- Merchandise Inventory 21,400 28,600
- Equipment 36,000 both together
- Accumulated Depreciation - Equipment 12,000< dep & equip ---> 35,000
- Accounts Payable 6,500 6,500
- Notes Payable 4,000 4,000
The partnership agreement includes the following provisions regarding the division of net income: interest of 10% on original investments, salary allowances of $36,000 (Schmidt) and $22,000 (Cohan), and the remainder equally.
1. Journalize the entries to record the investments of Schmidt and Cohen in the partnership accounts.
2. Prepare a balance sheet as of June 1, 2009, the date of formation of the partnership of Schmidt and Cohen.
3. After adjustments and the closing of revenue and expense accounts at May 31,2010, the end of the first full year of operations, the income summary account has a credit balance of $84,000, and the drawing accounts have debit balances of $30,000 (Schmit) and $25,000 (Cohen). Journalize the entries to close the income summary account and the drawing account at May 31,2010.