On August 1, 2010, Jarius Walker and Rae King form a partnership. Walker agrees to invest $18,200 in cash and merchandise inventory valued at $48,800. King invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:

The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,500 (Walker) and $30,400 (King), and the remainder equally.
Instructions
1. Journalize the entries to record the investments of Walker and King in the partnership accounts.
2. Prepare a balance sheet as of August 1, 2010, the date of formation of the partnership of Walker and King.
3. After adjustments and the closing of revenue and expense accounts at July 31, 2011, the end of the first full year of operations, the income summary account has a credit balance of $80,000, and the drawing accounts have debit balances of $22,500 (Walker) and $30,400 (King). Journalize the entries to close the income summary account and the drawing accounts at July 31,2011.

Transcribed Image Text:

King's Ledger Agreed-Upon Balance $25,300 1,500 92,300 Valuation Accounts Receivable Allowance for Doubtful Accounts Equipment Accumulated Depreciation-Equipment $24,100 55,100 15,000 25,000 35,600| Accounts Payable Notes Payable 25,000