Tyler Gilligan and Matt Melnyk, two college friends, decided to set up a snow removal business called Ty & Matt Snow Removal Services. On January 1, 2014, they put their resources together, shook hands, and started their business. They each contributed the following to the business:

At the end of the first year of business, Tyler, who was studying accounting, provided the following information:

Additional information:
1. Salaries expense is $20,000 and $10,000 cash paid to Tyler and Matt, respectively, during the year.
2. All revenues were collected in cash.
3. All supplies were paid for in cash. At the end of the year, there were no supplies on hand.
4. Tyler estimates that the equipment and vehicle have five-year useful lives, with no residual value. He used the straight-line method to calculate depreciation expense.
5. There is $17,000 in the bank account at December 31, 2014.
Instructions
(a) Prepare the entries to record each partner's investment in the partnership on January 2, 2014.
(b) Prepare journal entries to correct the errors, if any, on the income statement.
(c) Calculate the correct profit and the amount to be allocated to each partner.
(d) Prepare a statement of partners' equity for the year ended December 31, 2014.
(e) Prepare a balance sheet at December 31, 2014.
(f) Prepare closing entries for 2014.
Taking It Further
Tyler is not happy about how the profit was allocated. He says that he works twice as hard as Matt. Matt argues that he made a larger contribution to start the partnership. What should Tyler and Matt do to deal with their concerns?

Transcribed Image Text:

Tyler Gilligan Oniginal CostFair Value Matt Melnyk Cash Equipment Vehicle Original Cost 1,000 25,000 Fair Value 1,000 10,000 $2,000 3,000 2,000 2,000 TY & MATT SNOW REMOVAL SERVICES Income Statement Year ended December 31, 2014 Service revenue $50,000 Expenses Supplies expense Depreciation expense Salaries expense $ 6,000 2,400 30,000 38,400 Profit $11,600