Jordan Cates and LaToya Orr have operated a successful firm for many years, sharing net income and net losses of the partnership equally. Caleb Webster 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 carrying values as at May 31, except for the following:

• Accounts receivable amounting to $2,000 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.

• Inventory is to be valued at $63,870.

• Equipment is to be valued at $90,000.

b. Webster is to purchase $30,000 of the ownership interest of Orr for $37,500 cash and to contribute $35,000 cash to the partnership for a total ownership equity of $65,000.

c. The income-sharing ratio of Cates, Orr, and Webster is to be 2:1:1.

The post-closing trial balance of Cates and Orr as at May 31 follows.

Instructions

1. Journalize the entry as at May 31 to record the 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 at June 1, 2015.