Prad Kumar and Carol Grigg have operated a successful firm for many years, sharing net income and net losses equally. Sara Culver 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 $2,200 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 $56,500.

Equipment is to be valued at $125,900.

b. Culver is to purchase $55,000 of the ownership interest of Grigg for $60,000 cash and to contribute another $25,000 cash to the partnership for a total ownership equity of $80,000.

c. The income-sharing ratio of Kumar, Grigg, and Culver is to be 2:1:1.

The post-closing trial balance of Kumar and Grigg 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.

2. Journalize the additional entries to record the remaining transactions relating to the formation of the new partnership. Assume that all transactions occur on May 1.

3. Present a balance sheet for the new partnership as of May 1,2008.

Transcribed Image Text:

Kumar and Grigg Post-Closing Trial Balance April 30, 2008 Cash Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Prepaid Insurance Equipment Accumulated Depreciation-Equipment Accounts Payable Notes Payable Prad Kumar, Capital Carol Grigg, Capital Debit Balances 6,800 34,000 63,000 2,100 180,000 285,900 Credit Balances 900 80,000 12,000 20,000 100,000 73,000 285,900 Kumar and Grigg Post-Closing Trial Balance April 30, 2008 Cash Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Prepaid Insurance Equipment Accumulated Depreciation-Equipment Accounts Payable Notes Payable Prad Kumar, Capital Carol Grigg, Capital Debit Balances 6,800 34,000 63,000 2,100 180,000 285,900 Credit Balances 900 80,000 12,000 20,000 100,000 73,000 285,900

Answer rating: 100% (QA)

Journal entries to record revaluations as of April 30 Date Account Debit Credit April 30 Allowance f... View the full answer