Carefully consider the post-closing trial balances of two proprietorships on January 1, 2017…

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Carefully consider the post-closing trial balances of two proprietorships on January 1, 2017.

S Company L Company

$ $ $ $

Dr. Cr Dr Cr

Cash 14,000 12,000

Accounts Receivable 17,500 26,000

Allowances for doubtful debts 3,000 4,400

Inventory 26,500 18,400

Equipment 45,000 29,000

Accumulated Depreciation (Equipment) 24,000 11,000

Notes Payable 18,000 15,000

Accounts Payable 22,000 31,000

S Capital 36,000

L Capital 24,000

—————– ———– ———– ———–

103,000 103,000 85400 85,400

—————– ———– ———– ———–

S & L decide to form a partnership. Smart Partners, with the following agreed upon valuations for non-cash assets.

S Company L Company

Accounts Receivable $17,500 $26,000

Allowance for doubtful accounts 4,500 4,000

Inventory 28,000 20,000

Equipment 25,000 15,000

All cash will be transferred to the partnership and the partnership will assume all the liabilities of the two proprietorships. Further, it is agreed that S will invest an additional $5,000 in cash and L will invest an additional $19,000 in cash.

You are required to carry out the following tasks.

I Prepare separate journal entries to record the transfer of each proprietorship’s assets and liabilities to the partnership.

II Journalize the additional cash investments by each partner.

III Prepare a classified balance sheet for the partnership on January 1, 2017.

IV Discuss the differences between Sole-Proprietorship and Partnership

V Critically comment on the contributions of each partners to the new Partnership.

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