In: Accounting
On June 1, 2020, Jill Bow and Aisha Adams formed a partnership
to open a gluten-free commercial bakery, contributing $287,000 cash
and $374,000 of equipment, respectively. The partnership also
assumed responsibility for a $47,000 note payable associated with
the equipment. The partners agreed to share profits as follows: Bow
is to receive an annual salary allowance of $157,000, both are to
receive an annual interest allowance of 5% of their original
capital investments, and any remaining profit or loss is to be
shared 40/60 (to Bow and Adams, respectively). On November 20,
2020, Adams withdrew cash of $107,000. At year-end, May 31, 2021,
the Income Summary account had a credit balance of $450,000. On
June 1, 2021, Peter Williams invested $127,000 and was admitted to
the partnership for a 20% interest in equity.
Required:
1. Prepare journal entries for the following dates.
a. June 1, 2020
b. November 20, 2020
c. May 31, 2021
d. June 1, 2021
2. Calculate the balance in each partner’s capital
account immediately after the June 1, 2021, entry.
Partnership business is done by two or more partners joined together by contributing some amount as capitals. They will have a proportion to share the profits and losses.
1. Journal entries:
Working note:
Total equity prior to admission of new partner = Jill Bow's ($287,000 + $276,270) + Aisha Adam's ($327,000 - $107,000 + 173,730) = $957,000
Total equity after admission of new partner = $957,000 + $127,000 = $1,084,000
Peter William's interest = $1,084,000 × 20% = $216,800
Deficit to be borne by existing partners = $216,800 - $127,000 =
$89,800
2. Balances of each partners capital account after June 1, 2021
entry: