1.
Prepare entries for the formation of the
1.
Explanation of Solution
Partnership:
A partnership is an unincorporated form of business which is formed by an agreement, owned and managed mutually by two or more individuals, who invest their assets in the business and share the liabilities and profits among themselves.
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
Record the journal entry:
Date | Account titles and Explanation | Debit | Credit |
January 1 | Cash | $13,544 | |
$15,280 | |||
Merchandise Inventory | $89,692 | ||
Supplies | $1,286 | ||
Office Equipment | $18,000 | ||
Store Equipment | $8,000 | ||
Allowance for | $1,720 | ||
Notes payable | $36,000 | ||
Accounts payable | $18,082 | ||
Partner F, Capital | $90,000 | ||
(To record investment of Partner F in partnership) |
Table (1)
- Cash is an asset and it is increased. Therefore, debit cash by $13,544.
- Accounts receivable is an asset and it is increased. Therefore, debit accounts receivable account by $15,280.
- Merchandise inventory is an asset and it is increased. Therefore, debit merchandise inventory account by $89,692.
- Supplies are asset and it is increased. Therefore, debit supplies account by $1,286.
- Office equipment is an asset and it is increased. Therefore, debit office equipment account by $18,000.
- Store equipment is an asset and it is increased. Therefore, debit store equipment account by $8,000.
- Allowance for bad debts is a component of partners’ equity and it is increased which decreases the value of partners’ equity. Therefore, credit allowance for bad debts account by $1,720.
- Notes payable is a liability and it is increased. Therefore, credit notes payable account by $36,000.
- Accounts payable is a liability and it is increased. Therefore, credit accounts payable account by $18,082.
- Partner F, Capital is a component of partners’ equity and it is increases the value of partners’ equity. Therefore, credit Partner F, capital account by $90,000.
Date | Account titles and Explanation | Debit | Credit |
January 1 | Cash | $50,000 | |
Partner B, Capital | $50,000 | ||
( To record investment of Partner B in partnership) |
Table (2)
- Cash is an asset and it is increased. Therefore, debit cash account by $50,000
- Partner B, Capital is a component of
stockholders’ equity and it is increases the value of partners’ equity. Therefore, credit Partner B, capital account by $50,000.
2.
Prepare the lower portion of the income statement reporting the allocation of the profits to each partner.
2.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement. In partnership, the division is often recorded in the lower portion of the income statement.
The lower portion of the income statement is prepares as follows:
Partnership F and B Plumbing supplies | |||
Income Statement (Partial) | |||
For Year Ended December 31 | |||
Net income | $150,000 | ||
Allocation of net income: | Partner F | partner B | Total |
Salary allowances | $50,000 | $30,000 | $80,000 |
Interest allowances | $9,000 | $5,000 | $14,000 |
Remaining income | $33,600 | $22,400 | $56,000 |
Allocation of net income | $92,600 | $57,400 | $150,000 |
Table (3)
3.
Prepare journal entry for the investment of Partner P.
3.
Explanation of Solution
Date | Account titles and Explanation | Debit | Credit |
January 1 | Cash | $30,000 | |
Partner F, Capital | $30,000 | ||
( To record investment of Partner F in partnership) |
Table (4)
- Cash is an asset and it is increased. Therefore, debit cash account by $30,000
- Partner B, Capital is a component of stockholders’ equity and it is increases the of partners’ equity. Therefore, credit Partner B, capital account by $30,000.
4.
Prepare a statement of partnership liquidation and related journal entries.
4.
Explanation of Solution
Liquidation of partnership:
Liquidation is the process where assets are sold, gains and losses are allocated to the partners, liabilities are paid out and the cash that is remaining cash or other assets are distributed to partners.
The statement of partnership liquidation statement is prepared as follows:
Figure (1)
Record the journal entry:
Date | Account titles and Explanation | Debit | Credit |
August 1 | Cash | $130,000 | |
Loss on sale of assets | $20,000 | ||
Inventory | $150,000 | ||
(To record sale of assets) |
Table (5)
- Cash is an asset and it is increased. Therefore, debit cash account by $130,000.
- Loss on sale of assets is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit loss on sale of assets account, by $20,000.
- Inventory is an asset and it is decreased. Therefore, credit inventory account by $150,000.
Date | Account titles and Explanation | Debit | Credit |
August 1 | Partner F, Capital | $10,000 | |
Partner B, Capital | $6,000 | ||
Partner P, Capital | $4,000 | ||
Loss on sale of assets | $20,000 | ||
( To record allocation of loss) |
Table (6)
- Partner F, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner F, capital account by $10,000.
- Partner B, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner B, capital account by $6,000.
- Partner P, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner P, capital account by $4,000.
- Loss on sale of assets is a component of partners’ equity and it is increased which decreases the value of partners’ equity. Therefore, credit loss on sale of assets account, by $20,000.
Date | Account titles and Explanation | Debit | Credit |
Cash | $10,000 | ||
$18,000 | |||
Loss on sale of inventory | $2,000 | ||
Office equipment | $30,000 | ||
( To record Sale of office equipment) |
Table (7)
- Cash is an asset and it is increased. Therefore, debit cash account by $10,000.
- Accumulated depreciation is a contra asset and it is decreased. Therefore, debit accumulated depreciation account by $18,000.
- Loss on sale of assets is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit loss on sale of assets account, by $2,000.
- Office equipment is an asset and it is decreased. Therefore, credit office equipment account by $30,000.
Date | Account titles and Explanation | Debit | Credit |
August 3 | Partner F, Capital | $10,000 | |
Partner B, Capital | $6,000 | ||
Partner P, Capital | $4,000 | ||
Loss on sale of office furniture | $20,000 | ||
( To record distribution of cash to partners) |
Table (8)
- Partner F, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner F, capital account by $10,000.
- Partner B, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner B, capital account by $6,000.
- Partner P, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner P, capital account by $4,000.
- Loss on sale of assets is a component of partners’ equity and it is increased which decreases the value of partners’ equity. Therefore, credit loss on sale of assets account, by $20,000.
Date | Account titles and Explanation | Debit | Credit |
August 5 | Cash | $120,000 | |
Accumulated Depreciation-Store equipment | $150,000 | ||
Store equipment | $22,000 | ||
Gain on sale of store equipment | $5,000 | ||
(To record sale of store equipment) |
Table (9)
- Cash is an asset and it is increased. Therefore, debit cash account by $120,000.
- Accumulated depreciation is a contra asset and it is decreased. Therefore, debit accumulated depreciation account by $150,000.
- Office equipment is an asset and it is decreased. Therefore, credit office equipment account by $22,000.
- Gain on sale of asset is a component of partners’ equity and it is increased which decreases the value of partners’ equity. Therefore, credit gain on sale of assets account, by $5,000.
Date | Account titles and Explanation | Debit | Credit |
August 5 | Gain on sale of assets | $5,000 | |
Partner F, Capital | $2,500 | ||
Partner B, Capital | $1,500 | ||
Partner P, Capital | $1,000 | ||
( To record allocation of gain) |
Table (10)
- Gain on sale of assets is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit gain on sale of assets account, by $5,000.
- Partner F, Capital is a component of partners’ equity and it is increased which decreases the value of partners’ equity. Therefore, credit Partner F, capital account by $2,500.
- Partner B, Capital is a component of partners’ equity and it is increased which decreases the value of partners’ equity. Therefore, credit Partner B, capital account by $1,500.
- Partner P, Capital is a component of partners’ equity and it is increased which decreases the value of partners’ equity. Therefore, credit Partner P, capital account by $1,000.
Date | Account titles and Explanation | Debit | Credit |
August 10 | Notes payable | $20,000 | |
Cash | $20,000 | ||
( To record payment of notes payable) |
Table (11)
- Notes payable is a liability and it is decreased. Therefore, debit notes payable account by $20,000.
- Cash is an asset and it decreased. Therefore, debit cash account by $20,000.
Date | Account titles and Explanation | Debit | Credit |
August 15 | Partner F, Capital | $71,500 | |
Partner B, Capital | $ 44,900 | ||
Partner P Capital | $35,600 | ||
Cash | $152,000 | ||
( To record distribution of cash) |
Table (12)
- Partner F, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner F, capital account by $71,500.
- Partner B, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner B, capital account by $44,900.
- Partner P, Capital is a component of partners’ equity and it is decreased which increases the value of partners’ equity. Therefore, debit Partner P, capital account by $35,600.
- Cash is an asset and it is decreased. Therefore, credit cash account by $152,000.
Want to see more full solutions like this?
Chapter 19 Solutions
College Accounting, Chapters 1-27
- 2. Recording investment of assets and liabilities in a partnership. Sarah Punter operates a sole proprietorship business that sells golf equipment. In 2019, Punter agrees to transfer her assets and liabilities to a partnership that will operate The Golf Shop. Punter will own a two-thirds interest in the capital of the partnership. The agreed-upon values of assets and liabilities to be transferred follow: Total accounts receivable of $260,000 will be transferred and approximately $10,000 of these accounts may be uncollectible Merchandise inventory, $212,000 Furniture and fixtures, $96,000 Accounts payable, $37,000Required: Record the receipt of the assets and liabilities by the partnership in the general journal.arrow_forwardProblem #3 Formation of Partnership. Gogola and Paglinawan have just formed a partnership.Gogola contributed cash of P1,260,000 and a computer equipment that cost P540,000.The fair value of the computer is P360,000.Gogola has notes payable on the computer of P120,000 to be assumed by the partnership.Gogola is to have 60% capital interest in the partnership.Paglinawan contributed only P900,000.The partners agreed to share a profit and loss equally. Gogola should make an additional investment (withdrawal) ofarrow_forwardRequired information Important Notel Before you start working on this problem, watch the Hint video. This video shows you exactly how to work this problem. The following information applies to the questions displayed below] 5 Ramer and Knox began a partnership by investing $68,000 and $102,000, respectively. During its first year, the partnership earned $205,000. Prepare calculations showing how the $205,000 income is allocated under each separate plan for sharing income and loss. O Important Note! Before you start working on this problem, watch the Hint video. This video shows you exactly how to work this problem. 2. The partners agreed to share income and loss in proportion to their initial investments. Net Income is $205,000. (Do not round Intermediate calculations.) A $68.000/5170 000 Fraction to Allocate Ramers Share Fraction to Allocate Knox's Share of Total Income Allocated Show Transcribed Text Iarrow_forward
- Question No:1 Mr. Suhail and Mr. Said decided to start a partnership business. They drafted a partnership deed with the help of a consultant and started the business on 01.11.2020 Some of the key extracts of the partnership deed is given as follows: Resolved that. Each partner is to bring in OMR 15,000 as capital Each partner is to get 5% interest on capital Suhail is entitled to get a salary of OMR 400 per month Firm is entitled to charge 6% interest per annum on partner’s drawings. Summary of transactions: November: 2020 Capital contribution: Mr. Suhail –OMR 15000; Mr. Said: OMR 15000 Purchase of goods- OMR 8,000 Sales of goods- OMR 18,000 Wages- OMR 200 Salary to employees- OMR 1,200 Other administrative expenses- OMR 800 Rent of building- OMR 1,000 Electricity charges- OMR 15 Water charges- OMR 5 Travelling expenses- OMR 50 Furniture purchase- OMR 1,500 Electrical fittings- OMR 200 Drawings of partners-: Mr. Suhail –OMR 200; Mr. Said; OMR 150 Salary to Mr. Suhail-…arrow_forwardPartnerships: Basic Considerations and Formation 473 NAME: SCORE: SECTION: PROFESSOR: Problem #2 Formation of a Partnership Gogola and Paglinawan have just formed a partnership. Gogola contributed cash of P1,260,000 and computer equipment that cost P540,000. The fair value of the computer is P360,000. Gogola has notes payable on the computer of P120,000 to be assumed by the partnership. Gogola is to have 60% capital interest in the partnership. Paglinawan contributed only P900,000. The partners agreed to share profit and loss equally. Gogola should make an additional investment or (withdrawal) ofarrow_forwardBarbara Ripley and Fred Nichols decide to organize the ALL-Star partnership. Ripley invests $15,000 cash, and Nichols contributes $10,000 cash and equipment having a book value of $3,500.Prepare the entry to record Nichols’s investment in the partnership, assuming the equipment has a fair value of $4,000. What is the account title and explanation? what is debit? what is credit?arrow_forward
- LO.2 In the current year, Bill Parker (54 Oak Drive, St. Paul, MN 55164) is considering making an investment of 60,000 in Best Choice Partnership. The prospectus provided by Bills financial planner indicates that the partnership investment is not a passive activity and that Bills share of the entitys loss in the current year will likely be 40,000, whereas his share of the partnership loss next year will probably be 25,000. Write a letter to Bill in which you indicate how the losses would be treated for tax purposes in the current year and the following year.arrow_forwardProblem 2: Statement of Changes in Equity - Partnership The following are taken from the accounting records of JFK Partnership. December 31, 2020 December 31, 2021 James, Capital P54,900 P64,900 Christine, Capital 53,200 63,900 Lolly, Capital 44,890 50,890 The partnership generated net income of P51,600 in 2020. According to the partnership contract, James, Christine and Lolly share profit and loss equally. The partnership contract allows each partner to withdraw P1,000 monthly. James and Christine each contributed P5,000 during the year. Loll did not make any contributions during the year. Required: 1. Prepare the partnership's Statement of Changes in Equity. 2. Determine if any of the partners violated the partnership contract provision on Drawings. Identify who among the partners it is.arrow_forwardProblem 1. April invited May and June to join her in a partnership to be called Calendar Girls. The following were agreed upon: May is to invest sports equipment costing P195,000 with accumulated depreciation of P25,000. The current market a) value is P150,00. b) June isto invest land with an appraised value of P350,000. There is an attached mortgageto this which will be assumed by the partnership amounting to P130,000. c) April is investing her Slim Saloon, except for the cash, consisting of the following: Cash P10,000 Accounts receivable 30,000 Furniture and equipment 320,000 Accumulated depreciation 15,000 Accounts payable 15,000 10% of the accounts receivable is doubtful of collection. The furniture and equipment have a present market value of P300,000. What are the partners' capital balances just after the formation? 28. April, capital 29. Мay, capital 30. June, capital 31. What is the amount of the total current assets of the partnership immediately after formation? 32. What is…arrow_forward
- Problem 1: On January 1, 20x1, Rody and Noy formed a partnership. Rody and Noy contributed the following assets at formation: Rody Noy Cash 25,000 37,500 Inventory 18,750 Building 50,000 Equipment 18,750 The building is subject to a P12,500 mortgage, which was assumed by the partnership. They share profit and loss in the ratio of 60:40. Assuming Rody will invest (withdraw) cash so that his capital balance will equal to his profit and loss ratio, what is the total asset of the partnership after formation? (The correct answer is 246,875 but I need a solution/explanation)arrow_forwardProblem #2 Formation of a Partnership Gogola and Paglinawan have just formed a partnership. Gogola contributed cash of P1,260,000 and computer equipment that cost P540,000. The fair value of the computer is P360,000. Gogola has notes payable on the computer of P120,000 to be assumed by the partnership. Gogola is to have 60% capital interest in the partnership. Paglinawan contributed only P900,000. The partners agreed to share profit and loss equally. Gogola should make an additional investment or (withdrawal) ofarrow_forwardNumbers 6-10 (Bonus Method Vs. Invest or Withdraw Method) On January 1, 2023, Thanos and Helga formed a partnership with each contributing the following assets: Cash Machinery and equipment Building Furniture and fixtures A. B. C. D. The building is subject to a mortgage loan of P800,000, which is to be assumed by the partnership. The partnership agreement provides that Thanos and Hela share profits and losses in a 30:70 ratio: 6. How much is the capital balance of Thanos and Hela, respectively? Thanos A. B. C. D. 650,000 2,900,000 650,000 650,000 A. B. C. D. 650,000 650,000 A. B. C. D. 7. Assuming that the mortgage loan is not assumed by the partnership, how much is the capital balance of Thanos and Hela, respectively? Thanos 605,000 1,065,000 Thanos 1,065,000 650,000 605,000 1,065,000 Hela 2,900,000 Thanos 300,000 250,000 650,000 3,700,000 1,516,667 8. Disregarding the second question and assuming that the partnership agreement states that the capital credit of Thanos and Hela shall…arrow_forward
- College Accounting, Chapters 1-27 (New in Account...AccountingISBN:9781305666160Author:James A. Heintz, Robert W. ParryPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT