Adrian Knox and Lisa Oaks have operated a successful firm for many years, sharing net income and net losses equally. Todd Aguero is to be admitted to the partnership on June 1 of the current year, in accordance with the following agreement:

a. Assets and liabilities of the old partnership are to be valued at their book values as of May 31, except for the following:

• Accounts receivable amounting to $2,500 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.

• Merchandise inventory is to be valued at $98,000.

• Equipment is to be valued at $124,000.

b. Aguero is to purchase $30,000 of the ownership interest of Oaks for $37,500 cash and to contribute $40,000 cash to the partnership for a total ownership equity of $70,000.

c. The income-sharing ratio of Knox, Oaks, and Aguero is to be 2:1:1.

The post-closing trial balance of Knox and Oaks as of May 31 follows.

Instructions
1. Journalize the entries as of May 31 to record the revaluations, using a temporary account entitled Asset Revaluations. The balance in the accumulated depreciation account is to be eliminated.
2. Journalize the additional entries to record the remaining transactions relating to the formation of the new partnership. Assume that all transactions occur on June 1.
3. Present a balance sheet for the new partnership as of June 1,2008.

Transcribed Image Text:

Knox and Oaks Post-Closing Trial Balance May 31, 2008 Debit Credit Balances Balances Cash Accounts Receivable Allowance for Doubtful Accounts Merchandise Inventory Prepaid Insurance quipment Accumulated Depreciation- Equipment Accounts Payable Notes Payable Adrian Knox, Capital Lisa Oaks, Capital 12,300 26,500 89,000 126,000 34,200 34,400 30,000 85,000 74,000 258,000 258,000