Jim Steele and John Rich operate separate auto repair shops as proprietorships. On January 1, 2017, they
Question:
Jim Steele and John Rich operate separate auto repair shops as proprietorships. On January 1, 2017, they decide to combine their separate businesses to form Steele Rich Auto Repair, a partnership. Information from their separate balance sheets is presented below:
Steele Auto Repair Rich Auto Repair
Cash................................................................................ $ 5,000 $10,000
Accounts receivable......................................................... 8,000 5,000
Allowance for doubtful accounts................................... 1,000 500
Accounts payable............................................................. 3,000 6,000
Notes payable.................................................................. — 5,000
Salaries payable............................................................... 1,000 500
Equipment...................................................................... 12,000 26,000
Accumulated depreciation—equipment....................... 2,000 4,000
It is agreed that the expected realizable value of Steele's accounts receivable is $5,000 and Rich's receivables is $4,000. The fair value of Steele's equipment is $15,000 and Rich's equipment is $24,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the notes payable on Rich's balance sheet that he will pay himself.
Instructions
Prepare the journal entries necessary to record the formation of the partnership.
Accounting Principles
ISBN: 978-1119048473
7th Canadian Edition Volume 2
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak