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Formation of Partnership

Please see attachment.

The post-closing trial balances of two proprietorships on January 1, 2008 are presented below.

Free Company Will Company
Dr. Cr. Dr. Cr.

Cash $ 9,500 $ 6,000
Accounts Receivable 15,000 23,000
Allowance for Doubtful Accounts $ 2,500 $ 4,000
Merchandise Inventory 28,000 17,000
Equipment 50,000 30,000
Accumulated depreciation-equipment 24,000 13,000
Notes payable 25,000
Accounts payable 20,000 37,000
Free, Capital 31,000
Will, Capital _____ _____ _____ 22,000
$102,500 $102,500 $76,000 $76,000

Free and Will decide to form a partnership, Free-Will Company, with the following agreed upon valuations for non-cash assets.

Free Company Will Company

Accounts receivable $15,000 $23,000
Allowance for doubtful accounts 3,500 5,000
Merchandise inventory 32,000 21,000
Equipment 28,000 18,000

All cash will be transferred to the partnership, and the partnership will assume all the liabilities of the two proprietorships. Further, it is agreed that Free will invest an additional $3,000 in cash, and Will will invest an additional $13,000 in cash.

Instructions:

a. Prepare separate journal entries to record the transfer of each proprietorship's assets and liabilities to the partnership.
b. Journalize the additional cash investment by each partner.
c. Prepare a balance sheet for the partnership on January 1, 2008.

Attachments

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The post-closing trial balances of two proprietorships on January 1, 2008 are presented below.

Free Company Will Company
Dr. Cr. Dr. Cr.

Cash $ 9,500 $ 6,000
Accounts Receivable 15,000 23,000
Allowance for Doubtful Accounts $ 2,500 $ 4,000
Merchandise Inventory 28,000 17,000
Equipment 50,000 30,000
Accumulated depreciation-equipment 24,000 13,000
Notes payable 25,000
Accounts payable 20,000 37,000
Free, Capital 31,000
Will, Capital _____ _____ _____ 22,000
$102,500 $102,500 $76,000 $76,000

Free and Will decide to form a partnership, Free-Will Company, with the following agreed upon valuations for non-cash assets.

Free Company Will Company

Accounts ...

Solution Summary

The solution explains the entries needed to form a partnership from a proprietorship

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