Reference no: EM13554637

 Admitting new partner

Anthony Simpson and Shawna Ryder have operated a successful firm for many years, sharing net income and net losses equally. Blaine Evans is to be admitted to the partnership on June 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 May 31, except for the following:

• Accounts receivable amounting to $3,400 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 $64,300.
• Equipment is to be valued at $88,000.

b. Evans is to purchase $32,000 of the ownership interest of Ryder for $37,500 cash and to contribute $40,000 cash to the partnership for a total ownership equity of $72,000.

The post-closing trial balance of Simpson and Ryder as of May 31 follows.

Simpson and Ryder
Post-Closing Trial Balance
May 31, 2012
	Debit	Credit
	Balances	Balances
Cash	14,400
Accounts Receivable	21,400
Allowance for Doubtful Accounts		500
Merchandise Inventory	58,600
Prepaid Insurance	3,500
Equipment	97,000
Accumulated Depreciation-Equipment		25,700
Accounts Payable		14,700
Notes Payable		12,000
Anthony Simpson, Capital		80,000
Shawna Ryder, Capital		62,000
	194,900	194,900

Instructions

1. Journalize the entries as of May 31 to record the revaluations, using a temporary account entitled Asset Revaluations. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Anthony Simpson and Shawna Ryder.

2. Journalize the additional entries to record Evans' entrance to the partnership on May 31, 2012.

3. Present a balance sheet for the new partnership as of June 1, 2012.