Question

In: Accounting

Richard, Barry and Andrew decided to enter into a partnership agreement as from 1st July 2018,...

Richard, Barry and Andrew decided to enter into a partnership agreement as from 1st July 2018, some of the provisions of which were as follows.

1.       Richard to contribute $24000 cash, inventory the fair value of which was $51000, plant and machinery $94320, accounts receivable totalling $15240

2.       Barry to contribute $45000 cash and act as manager for the business at an annual salary of $38400 to be allocated to him at the end of each year.

3.       Andrew to contribute $19800 cash, land $144000, premises $288000, furniture and fittings $48600, and motor vehicles $37800. A mortgage of $216000 secured over the premises was outstanding and the partnership agreed to assume the mortgage.

4.       Profits or losses of the firm to be divided between or borne by Richard, barry and Andrew in the proportion of 2:1:3 respectively.

5.       Interest to be allowed at 8% p.a. on the capital contribution by the partners. Interest at 10% p.a. to be charged on partners’ drawings.

6.       During the year ended 30 June 2019, the income of the partnership totaled $144960, and the expenses (excluding interest on capital and drawings and Barry’s salary) amounted to $51600.

7.       Richard withdrew $14400 on 1 October 2018 and $9600 on 1 January 2019; Barrie withdrew $4800 only on 1 April 2019; Andrew withdrew $12000 on 30 June 2019.

Required

A) Prepare general journal entries necessary to open the records of the partnership.

B) Prepare the balance sheet of the partnership immediately after formation.

C) Prepare a Profit Distribution account for the year ended 30 June 2019.

PLEASE DO NOT COPY OTHERS ANSWERS

Solutions

Expert Solution

Richard, Barry and Andrew decided to enter into a partnership agreement as from 1st July 2018.

A) Journal entries

Journal (Debit) (Credit)

Cash A/c Dr.

Inventory A/c Dr.

Plant & Machinery A/c Dr.

Accounts receivable A/c Dr.

To Richard's Capital

(Being Richard's capital introduced)

24000

51000

94320

15240

184560

Cash A/c Dr.

To Barry's Capital A/c

(Being Barry's capital introduced)

45000

45000

Cash A/c Dr.

Land A/c Dr.

Premises A/c Dr.

Furniture & Fittings A/c Dr.

Motor Vehicles A/c Dr.

To Andrew's Capital A/c

(Being Richard's capital introduced)

19800

144000

288000

48600

37800

538200

B) Balance sheet of the firm as at 1st June 2018  

Particulars Amount ($) Particulars Amount ($)
Richard's Capital 184560 Cash (24000+45000+19800)   88800
Barry's Capital   45000   Inventory   51000
Andrew's Capital   538200   Plant & Machinery 94320
Accounts receivable 15240
Land 144000
Premises 288000
Furniture & Fittings 48600
Motor Vehicles 37800
Total 767760    Total 767760

C)   Profit Distribution account for the year ended 30 June 2019

Particulars Amount ($) Particulars Amount ($)
Expenses   51600 Income for the year 144960
Barry's salary 38400

Interest on capital

Richard (184560*8%)= 14765

Barry (45000*8%)= 3600

Andrew (538200*8%)= 4305

61421

Interest on drawings

Richard (Note 1)

Barry (4800*3/12*10%)

Andrew

1560

120

Net Loss for the year 4781

Distribution of Loss among the partners in profit sharing ratio:

Richard: 4781*2/6 = 1593.67

Barry: 4781*1/6 = 796.83

Andrew: 4781*3/6 = 2390.5

Note 1:

$ 14,400*10%*9/12 = 1080

$ 9600*10%*6/12 = 480

Total (1080+480) = 1560


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