Question

On March 1, Eckert and Kelley formed a partnership. Eckert contributed $74,000 cash, and Kelley contributed land valued at $59,200 and a building valued at $89,200. The partnership also took Kelley’s $64,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Eckert gets an annual salary allowance of $31,000, both get an annual interest allowance of 10% of their initial capital investment, and any remaining income or loss is shared equally. On October 20, Eckert withdrew $31,000 cash and Kelley withdrew $24,000 cash. After adjusting and closing entries are made to the revenue and expense accounts at December 31, the Income Summary account had a credit balance of $95,000.

Required:
1a. & 1b. Prepare journal entries to record the partners' initial capital investments and their subsequent cash withdrawals.
1c. Determine the partners' shares of income, and then prepare journal entries to close Income Summary and the partners' withdrawals accounts.
2. Determine the balances of the partners’ capital accounts as of December 31.

Answer 1

1a.

Account Titles	Debit	Credit
Cash	$           74,000
Eckert, Capital		$           74,000
Land	$           59,200
Building	$           89,200
Notes Payable		$           64,000
Kelly, Capital		$           84,400

1b.

Account Titles	Debit	Credit
Eckert, Withdrawls	$           31,000
Kelly, Withdrawls	$           24,000
Cash		$           55,000

2.

	Eckert	Kelly	Total
Net Income			$          95,000
Salary Allowance	$           31,000		$          31,000
Interest Allowance	$             7,400	$             8,440	$          15,840
Total Salaries and Interest	$           38,400	$             8,440	$          46,840
Balance of Income			$          48,160
Balance of Income allocated	$           24,080	$           24,080	$          48,160
Income of each partner	$           62,480	$           32,520	$         95,000

Account Titles	Debit	Credit
Income Summary	$           95,000
Eckert, Capital		$           62,480
Kelly, Capital		$           32,520

3.

Statement of Partners Equity
	Eckert	Kelly	Total
Investment	$           74,000	$           84,400	$       158,400
Net Income	$           62,480	$           32,520	$          95,000
	$         136,480	$         116,920	$       253,400
Less Withdrawls	$           31,000	$           21,000	$          52,000
Capital Balances, Dec 31	$         105,480	$           95,920	$       201,400