On November 1, 2007, E. Hoffman and Mark Torres form a partnership. Hoffman agrees to invest $9,000 cash and merchandise inventory valued at $16,000. Torres invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring his total capital to $90,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
|
|
Torres’ Ledger |
Agreed Upon |
|
|
Balance |
Valuation |
|
Accounts Receivable |
$23,500 |
$22,000 |
|
Allowance for Doubtful Accounts |
600 |
900 |
|
Merchandise Inventory |
25,600 |
31,000 |
|
Equipment |
40,000 |
38,000 |
|
Accumulated Depreciation—Equipment |
14,000 |
|
|
Accounts Payable |
7,300 |
7,300 |
|
Notes Payable |
3,400 |
3,400 |
The partnership agreement includes the following provisions regarding the division of net income: interest of 10% on original investments, salary allowances of $48,000 and $21,000, respectively, and the remainder equally.
Instructions
1. Journalize the entries to record the investments of Hoffman and Torres in the partnership accounts.
2. Prepare a balance sheet as of November 1, 2007, the date of formation of the partnership of Hoffman and Torres.
3. After adjustments and the closing of revenue and expense accounts at October 31, 2008, the end of the first full year of operations, the income summary account has a credit balance of $95,500, and the drawing accounts have debit balances of $20,000 (Hoffman) and $12,000 (Torres). Journalize the entries to close the income summary account and the drawing accounts at October 31.