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Lisa Holler and Chaim Ehrlich operate separate jewelry stores. On January 1, 2019, they decide to...

  1. Lisa Holler and Chaim Ehrlich operate separate jewelry stores. On January 1, 2019, they decide to combine their separate businesses which were operated as proprietorships to form L & C Jewels, a partnership. Information from their separate balance sheets is presented below:

                                                                                           Lisa Holler               Chaim Ehrlich

         Cash                                                                             $10,000                       $14,000

         Accounts receivable                                                       12,000                         10,000

         Allowance for doubtful accounts                                 1,000                              500

         Accounts payable                                                             5,000                           6,000

         Notes payable                                                                      —                             3,000

         Equipment                                                                  12,000                         24,000

         Accumulated depreciation—equipment                           2,000                           4,000

It is agreed that the expected realizable value of Lisa’s accounts receivable is $10,000 and Chaim’s receivables is $7,000. The fair value of Lisa’s equipment is $13,000 and the value of Chaim’s equipment is $20,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships.

Instructions

Prepare the journal entries necessary to record the formation of the partnership. Make a separate journal entry for each partner.

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