The postclosing trial balances of two proprietorships on Jan

The post-closing trial balances of two proprietorships on January 1, 2017, are presented below. Sorensen Company Lucas Company Dr. Cr. Dr. Cr. Cash $17,000 $14,400 Accounts receivable 21,000 31,000 Allowance for doubtful accounts $3,600 $5,300 Inventory 32,000 22,100 Equipment 54,000 35,000 Accumulated depreciation—equipment 28,800 13,200 Notes payable 21,600 18,000 Accounts payable 26,400 37,200 Sorensen, capital 43,600 Lucas, capital 28,800 $124,000 $124,000 $102,500 $102,500 Sorensen and Lucas decide to form a partnership, Solu Company, with the following agreed upon valuations for noncash assets. Sorensen Company Lucas Company Accounts receivable $21,000 $31,000 Allowance for doubtful accounts 5,400 4,800 Inventory 33,600 24,000 Equipment 30,000 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 Sorensen will invest an additional $6,000 in cash, and Lucas will invest an additional $22,800 in cash.

Prepare separate journal entries to record the transfer of each proprietorship’s assets and liabilities to the partnership.

Solution

Journal entries: Accounts title and explanation Debit $ Credit $ Cash Account Dr. 17000 Accounts receivable Account Dr. 21000 Inventry Account Dr. 33600 Equipment Account Dr. 30000         Allowance for doubtful account 5400         Notes payable Account 21600         Accounts payable Account 26400        Sorensen Capital 48200 Cash Account Dr. 14400 Accounts receivable Account Dr. 31000 Inventry Account Dr. 24000 Equipment Account Dr. 18000         Allowance for doubtful account 4800         Notes payable Account 18000         Accounts payable Account 37200          Lucas Company 27400 Cash Account Dr. 28800       Sorensen Capital Account 6000       Lucas capital Account 22800