On January 2, 2018, John and Jane drafted a partnership agreement to create a new partnership. The
Question:
On January 2, 2018, John and Jane drafted a partnership agreement to create a new partnership. The following items were contributed by each of the partners
John Jane
Cash $40,000 $60,000
Inventory 10,000
Building 180,000
Equipment 60,000
The building is subject to a mortgage of $50,000 which the partnership has assumed. The partnership agreement specifies that each partner receives 10% interest on his beginning capital balance. John receives an annual salary of $15,000: Jane receives an annual salary of $20,000. The residual profit or loss is divided using a 2:3 ratio which 2 parts assigned to John and 3 parts assigned to Jane.
During 2018 the partnership had income of $185,000. Assume there were no
drawings during 2018.
Journal Entries
Record the journal entry for each partner’s contribution to the partnership
● Journal entry for John’s contribution
● Journal entry for Jane’s contribution
Allocation of Income
Complete the following schedule showing the allocation of partnership income for
each partner.
John Jane
Beginning capital balance
Interest on capital balance
Annual salary
Remainder
Ending capital balance
Admission of New Partner
On January 1, 2019 John and Jane decide to admit a new partner, Tom, for a 1/6 interest in the firm for $175,000. The bonus method is used to record the admission of the new partner. After admitting the new partner, the partnership agreement is amended as follows:
Each partner receives 10% interest on his beginning capital balance. Each partner
receives an annual salary of $20,000. The residual profit or loss is divided in a ratio of
30% to John, 50% to Jane, and 20% to Tom.
Record the journal entry to admission of Tom to the partnership.
Dissolution of Partnership
Assume that on 12/31/19, the partnership is dissolved. On that date, after closing the books, the following information is available:
Cash $160,000
Loan to Jane (Notes Receivable) $50,000
Other assets (PP&E) $700,000
Liabilities $110,000
Capital, John $200,000
Capital, Jane $400,000
Capital, Tom $200,000
Other information necessary for the liquidation is as follows:
During the month of January 2020, assets with a book value of $180,000 were sold for $210,000. Other fixed assets turned out to have no value as of January 31, 2020. Prepare a schedule of safe payments as of January 31, 2020.
The partnership of John, Jane, and Tom
Schedule of Safe Payments
January 31, 2020
Cash Notes
Receivable
PP&E Liabilities Capital,
John
Capital,
Jane
Capital,
Tom
Balances before dissolution $160,000 $50,000 $700,000 $110,000 $200,000 $400,000 $200,000
Partner loans
Sale of assets, January
Payment of liabilities
Loss on other assets
