Ron Marden and Tip Baker operate separate auto repair shops. On January 1, 2020, 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 Repair Baker Auto Repair Cash $10,600 $14,500 Accounts receivable 12,800 10,300 Allowance for doubtful accounts 1,500 3,200 Accounts payable 5,500 5,900 Notes payable — 3,000 Salaries and wages payable 1,400 1,500 Equipment 12,400 24,400 Accumulated depreciation—equipment 2,800 4,400 It is agreed that the expected realizable value of Marden’s accounts receivable is $11,300 and Baker’s receivables is $7,100. The fair value of Marden’s equipment is $13,800 and the value of Baker’s equipment is $19,500. 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. (Credit account titles are automatically indented when amount is entered. Do not indent manually. List all debit entries before credit entries.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Ron Marden and Tip Baker operate separate auto repair shops. On January 1, 2020, 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 Repair	Baker Auto Repair
Cash	$10,600	$14,500
Accounts receivable	12,800	10,300
Allowance for doubtful accounts	1,500	3,200
Accounts payable	5,500	5,900
Notes payable	—	3,000
Salaries and wages payable	1,400	1,500
Equipment	12,400	24,400
Accumulated depreciation—equipment	2,800	4,400

It is agreed that the expected realizable value of Marden’s accounts receivable is $11,300 and Baker’s receivables is $7,100. The fair value of Marden’s equipment is $13,800 and the value of Baker’s equipment is $19,500. 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. (Credit account titles are automatically indented when amount is entered. Do not indent manually. List all debit entries before credit entries.)

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