James Grayson operates a store that sells paintings and portraits by local artists. Grayson has agreed to

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James Grayson operates a store that sells paintings and portraits by local artists. Grayson has agreed to enter into a partnership with Connie Chu, effective January 1, 20X1. The new firm will be called Paintings and Portraits Supply Company. Grayson is to transfer the assets and liabilities of his business to the partnership at the values agreed on. Chu will invest cash that is equal to Grayson’s investment after revaluation. The accounts shown on Grayson’s books and the agreed-on value of assets and liabilities follow:

INSTRUCTIONS
1. Prepare the general journal entries to record the following transactions on the books of the partnership on January 1, 20X1:
a. Receipt of Grayson’s investment of assets and liabilities.
b. Receipt of Chu’s investment of cash.
2. Prepare a balance sheet for the partnership as of the beginning of its operations on January 1, 20X1.
Analyze: If Connie Chu agreed to a cash investment equal to 80 percent of the value of James Grayson’s investment, what would the balance of Connie Chu’s capital account be after the formation of the partnership?

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College Accounting Chapters 1-30

ISBN: 9781260247909

16th Edition

Authors: David Haddock, John Price, Michael Farina

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