Question

Wendy Reichstein and Sonia Datta operate separate auto repair shops. On January 15, 2017, they decide...

Wendy Reichstein and Sonia Datta operate separate auto repair shops. On January 15, 2017, they decide to combine their businesses, which had been operated as proprietorships, to form Wendy & Sonia Auto Repair, a partnership. Information from their separate balance sheets is presented below:

Wendy
Auto
Repair
Sonia
Auto
Repair
Cash $8,600 $2,100
Accounts receivable 7,500 31,500
Allowance for doubtful accounts 800 1,500
Accounts payable 4,200 8,600
Notes payable - 15,000
Salaries payable - 1,100
Equipment 8,700 28,000
Accumulated depreciation - equipment 2,200 16,000


It is agreed that the expected realizable value of Wendy's accounts receivable is $4,700 and Sonia's receivables is $28,700. The fair market value of Wendy's equipment is $7,200 and Sonia's equipment is $10,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the note payable on Sonia's balance sheet, which she will pay herself.

Prepare the journal entries necessary to record the formation of the partnership.

Homework Answers

Answer #1

Solution:

The journal entries necessary to record the formation of the partnership.

Date Account titles and explanation Debit($) Credit($)
Jan 15 Cash A/c Dr $8,600
Equipment A/c Dr $7,200
Account receivable A/c Dr $4,700
To Accounts payable A/c $4,200
To Wendy reichstein, capital $16,300
Jan 15 Cash A/c Dr $2,100
Account receivable A/c Dr $28,700
Equipment A/c Dr $10,000
To Accounts payable A/c $8,600
To salary payable A/c $1,100
To notes payable A/c $15,000
To Sonia Datta capital A/c $16,100
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