Bill and Jane share profits and losses in a 70:30 ratio. Mike is to be admitted into a partnership upon the investment of $14,000 for a one-third capital interest. Account balances for Bill and Jane on June 30, 2008 just before the admission of Mike are as follows:
It is agreed that for purposes of establishing the interests of the former partners, the following adjustments shall be made: 1. An allowance for doubtful accounts of 2% of the accounts receivable is to be established. 2. The merchandise inventory is to be valued at $10,000. 3. Accrued expenses of $600 are to be recognized. 4. Prepaid insurance is to be valued at $300. 5. The goodwill method is to be used to record the admission of Mike.
Required: Prepare the entries to adjust the account balances in establishing the interests of Bill and Jane and to record the investment byMike.