Bill and Jane share profits and losses in a 70:30 ratio. Mike is to be admitted into a partnership upon the investment of $14,000 for a one-third capital interest. Account balances for Bill and Jane on June 30, 2019 just before the admission of Mike are as follows:

It is agreed that for purposes of establishing the interests of the former partners, the following adjustments shall be made:

1. An allowance for doubtful accounts of 2% of the accounts receivable is to be established.

2. The merchandise inventory is to be valued at $10,000.

3. Accrued expenses of $600 are to be recognized.

4. Prepaid insurance is to be valued at $300.

5. The bonus method is to be used to record the admission of Mike.

Required:

Prepare the entries to adjust the account balances in establishing the interests of Bill and Jane and to record the investment by Mike.

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Debit Credit $ 6,000 Cash Accounts Receivable 9,000 Notes Receivable 2,000 12,000 Merchandise Inventory Prepaid Insurance Accounts Payable Bill, Capital Jane, Capital 500 $ 9,500 12,000 8,000 $29,500 $29,500