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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Assets Transferred Cash Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Furniture and Equipment Accumulated Depreciation Total Assets Liabilities and Owner's Equity Transferred Accounts Payable James Grayson, Capital $78,000 14,000 216,000 164,000 Balances Shown in Grayson's Records $ 72,000 64,000 384,000 52,000 $572,000 32,000 $540,000 Value Agreed to by Partners $ 72,000 54,400 344,000 95,200 $565,600 32,000 $533,600