Hoogland and Post begin a partnership on January 1, 2021. Hoogland invests $40,000 cash and inventory costing
Question:
Hoogland and Post begin a partnership on January 1, 2021. Hoogland invests $40,000 cash and inventory costing $15,000 but with a current appraised value of only $12,000. Post contributes a building with a $40,000 book value and a $48,000 fair value. The partnership also accepts responsibility for a $10,000 note payable owed in connection with this building.
The partners agree to being operations with equal capital balances. The articles of partnership also provide that at each year-end, profits and losses are allocated as follows:
- For managing the business, Hoogland is credited with a bonus of 10 percent of partnership income after subtracting the bonus. No bonus is accrued if the partnership records a loss.
- Both partners are entitled to interest equal to 10 percent of the average monthly capital balance for the year without regard for the income or drawings of that year.
- Any remaining profit or loss is divided 60 percent to Hoogland and 40 percent to Post.
- Each partner is allowed to withdraw $800 per month in cash from the business.
On October 1, 2021, Hoogland invested an additional $12,000 cash in the business. For 2021, the partnership reported income of $33,000
Martina, an employee, is allowed to join the partnership on January 1, 2022. The new partner invests $66,000 directly into the business for a one-third interest in the partnership property. The revised partnership agreement still allows for both the bonus to Hoogland and the 10 percent interest, but all remaining profits and losses are now split 40 percent each to Hoogland and Martina with the remaining 20 percent to Post. Martina is also entitled to $800 per month in drawings.
Post chooses to withdraw from the partnership a few years later. After negotiations, all parties agree that Post should be paid a $90,000 settlement. The capital balances on that date were a follows:
Hoogland, Capital…………………………….$88,000
Post, Capital………………………………….. 78,000
Martina, Capital……………………………… 72,000
Make all necessary journal entries under GAAP rules. Assume entries for the monthly drawings of the partners are already done.
Expert Answer:
On Dec 31 2021 interest on capital has been provided first then bonus have been computed and lastly ... View the full answer
