On November 1, 2005, E. Tsao and Mark Ivens form a partnership. Tsao agrees to invest $15,000 cash and merchandise inventory valued at $55,000. Ivens invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total capital to $85,000. 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 of 10% on original investments, salary allowances of $24,000 and $18,000 respectively, and the remainder equally.

Instructions
1. Journalize the entries to record the investments of Tsao and Ivens in the partnership accounts.
2. Prepare a balance sheet as of November 1, 2005, the date of formation of the partnership of Tsao and Ivens.
3. After adjustments and the closing of revenue and expense accounts at October 31, 2006, the end of the first full year of operations, the income summary account has a credit balance of $75,500, and the drawing accounts have debit balances of $26,000 (Tsao) and $17,500 (Ivens). Journalize the entries to close the income summary account and the drawing accounts at October31.

Ivens' Ledge Agreed-Upon Balance Valuation Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Equipment Accumulated Depreciation Accounts Payable Notes Payable 533,250 500 42,500 50,000 29,700 9,700 10,000 31,500 800 42,900 25,000 9,700 10,000