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Admitting New Partner

Brian Caldwell and Adriana Estrada have operated a successful firm for many years, sharing net income and net losses equally. Kris Mays is to be admitted to the partnership on September 1 of the current year, in accordance with the following agreement:

1. Assets and liabilities of the old partnership are to be valued at their book values as of August 31, except for the following:
   1. Accounts receivable amounting to $2,200 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
   2. Merchandise inventory is to be valued at $57,900.
   3. Equipment is to be valued at $128,500.
2. Mays is to purchase $55,000 of the ownership interest of Estrada for $60,000 cash and to contribute another $30,000 cash to the partnership for a total ownership equity of $85,000.

The post-closing trial balance of Caldwell and Estrada as of August 31 is as follows:

Caldwell and Estrada
Post-Closing Trial Balance
August 31, 20Y9
	Debit Balances		Credit Balances
Cash	5,700
Accounts Receivable	35,200
Allowance for Doubtful Accounts			1,400
Merchandise Inventory	54,100
Prepaid Insurance	2,000
Equipment	149,000
Accumulated DepreciationEquipment			46,200
Accounts Payable			9,300
Notes Payable (current)			36,100
Brian Caldwell, Capital			82,000
Adriana Estrada, Capital			71,000
	246,000		246,000

Required:

1. Journalize the entries as of August 31 to record the revaluations, using a temporary account entitled Asset Revaluations. Debits and credits to the Asset Revaluation account are losses and gains from revaluation, respectively. 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 Brian Caldwell and Adriana Estrada.

For a compound transaction, if an amount box does not require an entry, leave it blank.

Aug. 31-Accounts Receivable	Asset Revaluations
	Accounts Receivable
	Allowance for Doubtful Accounts
Aug. 31-Merchandise Inventory	Merchandise Inventory
	Asset Revaluations
Aug. 31-Equipment	Accumulated Depreciation-Equipment
	Equipment
	Asset Revaluations
Aug. 31-Close	Asset Revaluations
	Brian Caldwell, Capital
	Adriana Estrada, Capital

2. Journalize the additional entries to record Mays's entrance to the partnership on September 1, 20Y9.

September 1-purchase	Adriana Estrada, Capital
	Kris Mays, Capital
September 1-contribution	Cash
	Kris Mays, Capital

3. Present a balance sheet for the new partnership as of September 1, 20Y9.

Caldwell, Estrada, and Mays
Balance Sheet
September 1, 20Y9
Assets
Current assets:
Cash		$
Accounts Receivable	$
Less Allowance for Doubtful Accounts
Merchandise Inventory
Prepaid Insurance
Total current assets			$
Property, plant, and equipment:
Equipment
Total assets			$
Liabilities
Current liabilities:
Accounts Payable		$
Notes Payable
Total liabilities			$
Partners' Equity
Brian Caldwell, Capital		$
Adriana Estrada, Capital
Kris Mays, Capital
Total partners' equity
Total liabilities and partners' equity			$

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