On March 1, 2016, Eric Keene and Abigail McKee form a partnership. Keene agrees
ID: 2417808 • Letter: O
Question
On March 1, 2016, Eric Keene and Abigail McKee form a partnership. Keene agrees to invest $20,900 in cash and merchandise inventory valued at $55,950. McKee invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,390. 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 on original investments at 10%, salary allowances of $22,800 (Keene) and $30,590 (McKee), and the remainder equally.
Chart of Accounts
1. Journalize the entries on March 1 to record the investments of Keene and McKee in the partnership accounts. Refer to the Chart of Accounts for exact wording of account titles.
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JOURNAL
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3. After adjustments and the closing of revenue and expense accounts at February 28, 2017, the end of the first full year of operations, the income summary account has a credit balance of $89,600, and the drawing accounts have debit balances of $27,870 (Keene) and $30,730 (McKee). Journalize the entries on February 28 to close the income summary account and the drawing accounts. Refer to the Chart of Accounts for exact wording of account titles. If required, round your answers to two decimal places.
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JOURNAL
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Closing Entries
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Labels and Amount Descriptions
Balance Sheet
2. Prepare a balance sheet as of March 1, 2016, the date of formation of the partnership of Keene and McKee. Refer to the Chart of Accounts and the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Enter current assets in order of liquidity. “Less”, “Add”, or colons (:) will automatically appear if required.
Keene and McKee
Balance Sheet
March 1, 2016
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Assets
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Liabilities
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Partners’ Equity
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McKee’s Ledger Agreed-Upon Balance Valuation Accounts Receivable $19,370 $18,480 Allowance for Doubtful Accounts 1,240 1,520 Equipment 83,050 54,330 Accumulated Depreciation 29,920 – Accounts Payable 14,980 14,980 Notes Payable (current) 35,860 35,860Explanation / Answer
DATE DESCRIPTION POST. REF. DEBIT CREDIT 1-Mar Cash 110 $20,900 Merchandise Inventory 116 55950 Eric Keene, Capital 312 $76,850 being cash and inventory itroduced in firm 1-Mar Cash 110 $39,940 Accounts Receivable 112 $18,480 Equipment 123 54,330 Abigail McKee, Capital 310 60390 Accounts Payable 210 14,980 Notes Payable (current) 211 35,860 Allowance for Doubtful Accounts 113 1,520 (Being the assets and liabilities transferred and to make capital balance as $60390 cash is introduced) Balance Sheet as on 1 March Assets Amount Cash 110 $60,840 Accounts Receivable 112 $18,480 Allowance for Doubtful Accounts 113 -1,520 Merchandise Inventory 116 55950 Equipment 123 54,330 Total assets $188,080 Liabilities Accounts Payable 210 14,980 Notes Payable 211 35,860 EQUITY Abigail McKee, Capital 310 60390 Eric Keene, Capital 312 $76,850 Total Liabilities & Equity 188,080 DATE DESCRIPTION POST. REF. DEBIT CREDIT Closing Entries 28-Feb Income Summary 330 89600 Abigail McKee, Capital (10%*60390+30590) 310 47872 Eric Keene, Capital (10%*76850)+22800) 312 41728 Calculation Abigail McKee, Capital (10%*60390+30590) 36629 Eric Keene, Capital (10%*76850)+22800) 30485 Total 67114 Income 89600 Balance equally 22486 Abigail McKee, Capital 11243 Eric Keene, Capital 11243 Total Abigail McKee, Capital A+B 47872 Total Eric Keene, Capital C+D 41728 28-Feb Abigail McKee, Capital 310 $30,730 Eric Keene, Capital 312 27870 Abigail McKee, Drawing 311 $30,730 Eric Keene, Drawing 313 27870
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