Michelle Hamilton and Bill Rossi decide to form a partnership. Hamilton invests $35,000 cash and accounts receivable of $30,000 less allowance for doubtful accounts of $2,000. Rossi contributes $25,000 cash and equipment having a $6,000 book value. It is agreed that the allowance account should be $3,000 and the fair value of the equipment is $10,000.
Prepare the necessary journal entry to record the formation of the partnership.
Ron Marden and Tip Baker operate separate auto repair shops. On January 1, 2017, they decide to combine their separate businesses which were operated as proprietorships to form M & B Auto Repair, a partnership. Information from their separate balance sheets is presented below:
Marden Auto RepairBaker Auto Repair
Allowance for doubtful accounts1,000500
Salaries and wages payable1,0001,500
It is agreed that the expected realizable value of Marden’s accounts receivable is $11,000 and Baker’s receivables is $7,000. The fair value of Marden’s equipment is $13,000 and the value of Baker’s equipment is $20,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the notes payable on Baker’s balance sheet which he will pay himself.
Prepare the journal entries necessary to record the formation of the partnership.