following adjustments should be made: • An allowance for bad debts shall be established for the accounts receivable at a rate of 5% • The fair values of the inventories are 270,000 and 240,000 for Arnold and Brandon, respectively. • Prepaid expenses are deemed worthless • Arnold’s land should be increased by 50,000 • Brandon’s equipment should be carried at 350,800 • Arnold shall recognize accrued salaries of 40,500 2. How much is the net adjustment in the books of Arnold?
Arnold and Brandon are sole proprietors who decided to merge their business and form a partnership. Their business will be named Arnold and Brandon Salon and Spa. Below are the details of the records of each partner’s business prior to partnership formation:
|
ARNOLD |
BRANDON |
|
|
DR (CR) |
DR (CR) |
|
|
CASH |
159,604.00 |
195,034.00 |
|
|
453,030.00 |
693,208.00 |
|
INVENTORY |
305,029.00 |
259,403.00 |
|
SUPPLIES |
5,000.00 |
6,500.00 |
|
PREPAID EXPENSES |
12,340.00 |
5,049.00 |
|
LAND |
100,000.00 |
|
|
BUILDING |
250,000.00 |
|
|
EQUIPMENT |
400,000.00 |
|
|
ACCOUNTS PAYABLE |
(204,023.00) |
(320,494.00) |
|
NOTES PAYABLE |
(150,000.00) |
(250,000.00) |
|
ARNOLD, CAPITAL |
? |
|
|
BRANDON, CAPITAL |
? |
Prior to partnership formation, the following adjustments should be made:
• An allowance for
• The fair values of the inventories are 270,000 and 240,000 for Arnold and Brandon, respectively.
• Prepaid expenses are deemed worthless
• Arnold’s land should be increased by 50,000
• Brandon’s equipment should be carried at 350,800
• Arnold shall recognize accrued salaries of 40,500
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