Jim Steele and John Rich operate separate auto repair shops as proprietorships. On January 1, 2017, they decide to combine their separate businesses to form Steele Rich Auto Repair, a partnership. Information from their separate balance sheets is presented below:

Steele Auto Repair Rich Auto Repair

Cash................................................................................ $ 5,000                  $10,000

Accounts receivable......................................................... 8,000                      5,000

Allowance for doubtful accounts................................... 1,000                          500

Accounts payable............................................................. 3,000                      6,000

Notes payable..................................................................      —                       5,000

Salaries payable............................................................... 1,000                         500

Equipment...................................................................... 12,000                   26,000

Accumulated depreciation—equipment....................... 2,000                      4,000

It is agreed that the expected realizable value of Steele's accounts receivable is $5,000 and Rich's receivables is $4,000. The fair value of Steele's equipment is $15,000 and Rich's equipment is $24,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the notes payable on Rich's balance sheet that he will pay himself.

Instructions

Prepare the journal entries necessary to record the formation of the partnership.