Tom and Julie formed a management consulting partnership on January 1, 2014. The fair value of the
Question:
Tom and Julie formed a management consulting partnership on January 1, 2014. The fair value of the net assets invested by each partner follows:
Tom Julie
Cash $13,000 $12,000
Accounts receivable 8,000 6,000
Office supplies 2,000 800
Office equipment 30,000 —
Land — 30,000
Accounts payable 2,000 5,000
Mortgage payable — 18,800
During the year, Tom withdrew $15,000 and Julie withdrew $12,000 in anticipation of operating profits. Net profit for 2014 was $50,000, which is to be allocated based on the original net capital investment.
Required:
A. Prepare journal entries to:
a. Record the initial investment in the partnership.
b. Record the withdrawals.
c. Close the Income Summary and Drawing accounts.
B. Prepare a statement of changes in partners’ capital for the year ended December 31, 2014.