Brian Snow and Wendy Waite formed a partnership on July 1, 2007. Brian invested $20,000 cash, inventory valued at $15,000, and equipment valued at $67,000. Wendy invested $50,000 cash and land valued at $120,000. The partnership assumed the $40,000 mortgage on the land. On June 30, 2008, the partnership reported a net loss of $24,000. The partnership contract specified that income and losses were to be allocated by allowing 10% interest on the original capital investment, salaries of $15,000 to Brian and $20,000 to Wendy, and the remainder to be divided in the ratio of 40:60.
On July 1, 2008, Alan Young was admitted into the partnership with a $70,000 cash investment. Alan was given a 30% interest in the partnership because of his special skills. The partners elect to use the bonus method to record the admission. Any bonus should be divided in the old ratio of 40:60.
On June 30, 2009, the partnership reported a net income of $150,000. The new partnership contract stipulated that income and losses were to be divided in a fixed ratio of 20:50:30. On July 2, 2009, Brian withdrew from the partnership for personal reasons. Brian was given $40,000 cash and a $60,000 note for his capital interest.
Prepare journal entries for each of the following events. Show computations.
1. Formation of the partnership.
2. Distribution of the net loss for the first year.
3. Admission of Alan into the partnership.
4. Distribution of the net income for the second year.
5. Withdrawal of Brian from the partnership.