Sadhil Rao and Lauren Sails have operated a successful firm for many years, sharing net income and net losses of the partnership equally. Paige Hancock is to be admitted to the partnership on May 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 April 30, except for the following:

• Accounts receivable amounting to $2,800 are to be written off, and the allow ance for doubtful accounts is to be increased to 5% of the remaining accounts.

• Inventory is to be valued at $65,480.

• Equipment is to be valued at $194,000.

b. Hancock is to purchase $55,000 of the ownership interest of Sails for $60,000 cash and to contribute another $30,000 cash to the partnership for a total ownership

equity of $85,000. c.The income-sharing ratio of Rao, Sails, and Hancock is to be 2:1:1.

The post-closing trial balance of Rao and Sails as at April 30 is as follows:

Instructions

1. Journalize the entry as at April 30 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 May 1.

3. Present a balance sheet for the new partnership as at May 1, 2015.