Jordan Cates and LaToya Orr have operated a successful firm for many years, sharing net income and

Question:

Jordan Cates and LaToya Orr have operated a successful firm for many years, sharing net income and net losses of the partnership equally. Caleb Webster is to be admitted to the partnership on June 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 carrying values as at May 31, except for the following:

• Accounts receivable amounting to $2,000 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.

• Inventory is to be valued at $63,870.

• Equipment is to be valued at $90,000.

b. Webster is to purchase $30,000 of the ownership interest of Orr for $37,500 cash and to contribute $35,000 cash to the partnership for a total ownership equity of $65,000.

c. The income-sharing ratio of Cates, Orr, and Webster is to be 2:1:1.

The post-closing trial balance of Cates and Orr as at May 31 follows.

Cates and Orr Post-Closing Trial Balance May 31, 2015 Debit Balances Credit Balances Cash 9,400 Accounts Receivable 21.4

Instructions
1. Journalize the entry as at May 31 to record the revaluations. The balance in the accumulated depreciation account is to be eliminated.
2. Journalize the additional entries to record the remaining transactions relating to the formation of the new partnership. Assume that all transactions occur on June 1.
3. Present a balance sheet for the new partnership as at June 1, 2015.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
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Accounting Volume 2

ISBN: 978-0176509743

2nd Canadian edition

Authors: James Reeve, Jonathan Duchac, Sheila Elworthy, Carl S. Warren

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