Please note that Part A and Part B are not related.

Part A (5.5 marks)

Alicia and May formed a partnership by merging their existing business on 1 July 2019. The records of the two sole traders on that date are presented below

Alicia	May
$	$
25 000	80 000
3 500	5 000 25 000 75 500 25 000
1 200000 200000 700 000	20 000

Cash

Account Receivable

Inventory

Equipment

Accumulated depreciation-equipment

Property

Accumulated depreciation-property

bank Loan

Mortgage

As at 1 July 2019, all the above assets and liabilities are recorded at fair value, except for Mays account receivable. Mays account receivable amount reported in the above table (i. e. $5 000) is $1 500 below the fair value. Ignore GST.

Required:

Prepare the journal entries to record the initial investments of Alicia and May.

Part B

.Kim and Tom formed a partnership by investing $630 000 and $870 000 respectively. The partnership had a net profit of $98 000 in the first year.

Required:

1. Calculate the allocation of profit under each of the following assumptions.
   • Assumption 1: Kim and Tom agree to share profit in the ratio of their original capital investments. (1 Mark)
   • Assumption 2: Kim and Tom agree a $30 000 per year salary allowance to Kim and $35 000 per year salary allowance to Tom. Any remaining profit is to be shared equally. (1 Mark)

2. Prepare the journal entries to record the allocation of profit under Assumption 1, using method 1. (2.5 Marks)