On March 1, 2016, Eric Keene and Abigail McKee form a partnership. Keene agrees to invest $21,100 in cash and merchandise inventory valued at $55,900. McKee 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:

	McKees Ledger	Agreed-Upon
	Balance	Valuation
Accounts Receivable	$18,900	$18,000
Allowance for Doubtful Accounts	1,200	1,500
Equipment	83,500	54,900
Accumulated Depreciation	29,800
Accounts Payable	15,000	15,000
Notes Payable (current)	36,000	36,000

The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,500 (Keene) and $30,400 (McKee), and the remainder equally.

Required:

1.

Journalize the entries on March 1 to record the investments of Keene and McKee in the partnership accounts.*

2.

Prepare a balance sheet as of March 1, 2016, the date of formation of the partnership of Keene and McKee.*

3.

After adjustments and the closing of revenue and expense accounts at February 28, 2017, the end of the first full year of operations, the income summary account has a credit balance of $90,000, and the drawing accounts have debit balances of $28,000 (Keene) and $30,400 (McKee). Journalize the entries on February 28 to close the income summary account and the drawing accounts at February 28, 2017.*

*Refer to the Chart of Accounts and the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries.

Chart of Accounts

CHART OF ACCOUNTS

Keene and McKee

General Ledger

	ASSETS
110	Cash
112	Accounts Receivable
113	Allowance for Doubtful Accounts
116	Merchandise Inventory
117	Office Supplies
119	Prepaid Insurance
120	Land
123	Equipment
124	Accumulated Depreciation-Equipment

	LIABILITIES
210	Accounts Payable
211	Notes Payable
212	Interest Payable
213	Sales Tax Payable

	EQUITY
310	Abigail McKee, Capital
311	Abigail McKee, Drawing
312	Eric Keene, Capital
313	Eric Keene, Drawing
330	Income Summary

	REVENUE
410	Sales

	EXPENSES
510	Cost of Merchandise Sold
521	Advertising Expense
522	Depreciation Expense-Equipment
529	Selling Expenses
533	Insurance Expense
534	Office Supplies Expense
536	Credit Card Expense
537	Cash Short and Over
538	Bad Debt Expense
539	Miscellaneous Expense

Journal

1. Journalize the entries on March 1 to record the investments of Keene and McKee in the partnership accounts. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 5

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

3. After adjustments and the closing of revenue and expense accounts at February 28, 2017, the end of the first full year of operations, the income summary account has a credit balance of $90,000, and the drawing accounts have debit balances of $28,000 (Keene) and $30,400 (McKee). Journalize the entries on February 28 to close the income summary account and the drawing accounts. Refer to the Chart of Accounts for exact wording of account titles.

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JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1		Closing Entries
2
3
4
5
6
7
8

Labels and Amount Descriptions

Labels	Amount Descriptions
Current assets	Total assets
Current liabilities	Total current assets
Plant assets	Total liabilities
	Total liabilities and members equity
	Total liabilities and partners equity
	Total members equity
	Total partners equity

Balance Sheet

2. Prepare a balance sheet as of March 1, 2016, the date of formation of the partnership of Keene and McKee. Refer to the Chart of Accounts and the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Enter current assets in order of liquidity. Less, Add, or colons (:) will automatically appear if required.

Keene and McKee

Balance Sheet

March 1, 2016

1	Assets
2
3
4
5
6
7
8
9
10
11	Liabilities
12
13
14
15
16	Partners Equity
17
18
19
20