On March 1, 2014, 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:
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.
1. Journalize the entries to record the investments of Keene and McKee in the partnership accounts.
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Journal
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Date
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Details
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DR
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Cr
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|
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Accounts Receivable
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18000
|
|
|
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Equipment
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54900
|
|
|
|
Allowance for doubtful account
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1500
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|
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Accounts Payable
|
|
15000
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|
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Note Payable
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36000
|
|
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Keene Capital
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20400
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2. Prepare a balance sheet as of March 1, 2014, the date of formation of the partnership of Keene and McKee.
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Keene and McKee
Balance Sheet
March 1, 2014
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ASSETS
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LIABILITIES
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|
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Cash
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21000
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Accounts Payable
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15,000
|
|
|
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Note Payable
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36,000
|
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Accounts Receivable
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18,900
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Total Liabilities
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51000
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|
|
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OWNER'S EQUITY
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|
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Equipment
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54,900
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Eric keene
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|
|
|
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Abigail Mckee
|
60000
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Total Assets
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73,800
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TOTAL LIABILTIES &EQUITY
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111000
|
|
|
|
|
|
3. After adjustments and the closing of revenue and expense accounts at February 28, 2015, 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 to close the income summary account and the drawing accounts at February 28, 2015.