Tosio Kato and Angela Gordon have operated a successful firm for many years, sharing net income and net losses equally. Tricia McCay is to be admitted to the partnership on May 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 April 30, except for the following:

• Accounts receivable amounting to $2,400 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 $63,200.

• Equipment is to be valued at $141,900.

b. McCay is to purchase $60,000 of the ownership interest of Gordon for $65,000 cash and to contribute another $35,000 cash to the partnership for a total ownership equity of $95,000.

The post-closing trial balance of Kato and Gordon as of April 30 is as follows:

Instructions
1. Journalize the entries as of April 30 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 Tosio Kato and Angela Gordon.
2. Journalize the additional entries to record McCay's entrance to the partnership on May 1, 2012.
3. Present a balance sheet for the new partnership as of May 1,2012.

Transcribed Image Text:

Kato and Gordon Post-Closing Trial Balance April 30, 2012 Debit Balances Balances Credit Cash Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Prepaid Insurance Equipment Accumulated Depreciation-Equipment Accounts Payable Notes Payable Tosio Kato, Capital Angela Gordon, Capital 6,000 38,400 1,400 59,000 2,200 165,000 51,700 9,500 40,000 90,000 78,000 270,600 270,600