Question

On June 1, 2020, Jill Bow and Aisha Adams formed a partnership to open a gluten-free commercial bakery, contributing $282,000 cash and $364,000 of equipment, respectively. The partnership also assumed responsibility for a $42,000 note payable associated with the equipment. The partners agreed to share profits as follows: Bow is to receive an annual salary allowance of $152,000, 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 $102,000. At year-end, May 31, 2021, the Income Summary account had a credit balance of $400,000. On June 1, 2021, Peter Williams invested $122,000 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.

Answer 1

Workings:

Calculation of Interest
Partners	Amount Invested	Beginning Date	End Date	Total Period	Interest
Jill Bow	282000	01/06/2020	31/05/2021	365.00	14100
Aisha Adams	322000	01/06/2020	20/11/2020	173.00	7631
Aisha Adams	220000	21/11/2020	31/05/2021	192.00	5786
Total	27517

Profit Calculation
Particulars	$
Income Summary	400000
Expenses :
Salary	152000
Interest on Capital	27517
Profit	220483

Distribution of Profit
Jill Bow Capital	Aisha Adam Capital	Total
40%	60%
88193.2	132289.8	220483

1. Journal Entries :

Date	Particulars	Dr/Cr	$	$
01/06/2020	Cash A/c	Dr	282000
	Equipment A/c	Dr	364000
	To Bills payable	Cr		42000
	To Jill Bow Capital A/c	Cr		282000
	To Aisha Adams Capital A/c	Cr		322000
	(Business Started with Capital)
20/11/2020	Aisha Adams Capital	Dr	102000
	To Cash	Cr		102000
	(Cash withdrawn by partner)
31/05/2020	Salary	Dr	152000
	To Jill Bow	Cr		152000
	(Salary for the year for Partner)
31/05/2020	Jill Bow	Dr	152000
	To Cash	Cr		152000
	(Salary Paid to Partner)
31/05/2020	Interest on Capital	Dr	27517
	To Jill Bow Capital A/c	Cr		14100
	To Aisha Adams Capital A/c	Cr		13417
	(Interest Paid to Partner)
31/05/2020	Profit & Loss	Dr	220483
	To Jill Bow Capital A/c	Cr		88193
	To Aisha Adams Capital A/c	Cr		132290
	(Profit Transferred to partners)
01/06/2020	Cash A/c	Dr	122000
	To Peter Williams Capital A/c	Cr		122000
	(New Partner Admitted)

2. Balance of Capital Account

Jill Bow Capital A/c
Date	Particulars	$	Date	Particulars	$
			01/06/2020	By Cash	282000
			31/05/2020	By Interest on Capital	14100
31/05/2020	To Balance C/f	384293	31/05/2020	By Profit & Loss	88193
	Total	384293		Total	384293
Aisha Adam Capital
Date	Particulars	$	Date	Particulars	$
01/06/2020	To Bills Payable	42000	01/06/2020	By Equipment	364000
20/11/2020	To Cash	102000	31/05/2020	By Interest on Capital	13417
31/05/2020	To Balance C/f	365707	31/05/2020	By Profit & Loss	132290
	Total	509707		Total	509707
Peter Willams Capital
Date	Particulars	$	Date	Particulars	$
01/06/2020	To Balance C/f	122000	01/06/2021	By Cash	122000
	Total	122000		Total	122000
	Balance on 01/06/2020
	Capital A/c	$	Dr/Cr
	Jill Bow Capital A/c	384293	Cr
	Aisha Adam Capital	365707	Cr
	Peter Willams Capital	122000	Cr