Question

In January 2013, Edi Thomas and George Lopez agreed to produce and sell chocolate candies. Thomas contributed $480,000 in cash to the business. Lopez contributed the building and equipment, valued at $440,000 and $280,000, respectively.
The partnership had an income of $168,000 during 2013 but was less successful during 2014, when income was only $80,000.

Required
1. Prepare the journal entry to record the investment of both partners in the partnership.
2. Determine the share of income for each partner in 2013 and 2014 under each of the following conditions:
a. The partners agreed to share income equally.
b. The partners failed to agree on an income-sharing arrangement.
c. The partners agreed to share income according to the ratio of their original investments.
d. The partners agreed to share income by allowing interest of 10 percent on their original investments and dividing the remainder equally.
e. The partners agreed to share income by allowing salaries of $80,000 for Thomas and $56,000 for Lopez, and dividing the remainder equally.
f. The partners agreed to share income by paying salaries of $80,000 to Thomas and $56,000 to Lopez, allowing interest of 9 percent on their original investments, and dividing the remainder equally.
3. What are some of the factors that need to be considered in choosing the plan of partners’ income sharing among the options shown in requirement 2?



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  • CreatedMarch 26, 2014
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