Jesse and Tim form a partnership by combining the assets of

Jesse and Tim form a partnership by combining the assets of their separate businesses. Jesse contributes accounts receivable with a face amount of $45,000 and equipment with a cost of $180,000 and accumulated depreciation of $99,000. The partners agree that the equipment is to be valued at $68,200, that $3,500 of the accounts receivable are completely worthless and are not to be accepted by the partnership, and that $2,100 is a reasonable allowance for the uncollectibility of the remaining accounts receivable. Tim contributes cash of $22,000 and merchandise inventory of $45,500. The partners agree that the merchandise inventory is to be valued at $49,000.

Journalize the entries to record in the partnership accounts (a) Jesse\'s investment and (b) Tim\'s investment. If an amount box does not require an entry, leave it blank.

Solution

In Jesse and Tim Partnership Books:

Jesse’s investment:

Accounts receivable $45000, of which $3500 is to be immediately written off due to non-collectability and another $2100 must be provided by way of an allowance for uncollectibles.

Value of A/R = $45000 - $3500 = $41500

Equipment cost: $180000

Accumulated depreciation: $99000

Written down value: $180000 - $99000 = $81000

A decrease in value of the equipment is to be accounted for worth $12800 in order to make it to $68200

Tim’s Investment:

Cash $22000

Inventory having a book value of $45500 is to be raised to $49000 for incorporation into the books.

Journal:

Jesse:

Accounts receivable                       Dr.          $41500

Equipment Dr. $68200

Capital, Jesse $109700

Tim:

Cash Dr.          $22000

Inventory Dr. $49000

                Capital, Tim $71000