Question

P15-17 Partnership Formation, Operation, and Changes in Ownership LO 15-3, 15-4, 15-5, 15-6 The partnership of Jordan and O’Neal began business on January 1, 20X7. Each partner contributed the following assets (the noncash assets are stated at their fair values on January 1, 20X7): Jordan O’Neal Cash $ 61,400 $ 50,900 Inventories 80,200 –0– Land –0– 131,500 Equipment 101,100 –0– The land was subject to a $50,300 mortgage, which the partnership assumed on January 1, 20X7. The equipment was subject to an installment note payable that had an unpaid principal amount of $21,100 on January 1, 20X7. The partnership also assumed this note payable. Jordan and O’Neal agreed to share partnership income and losses in the following manner: Jordan O’Neal Interest on beginning capital balances 3 % 3 % Salaries $ 13,500 $ 13,500 Remainder 60 % 40 % During 20X7, the following events occurred: 1. Inventory was acquired at a cost of $31,300. At December 31, 20X7, the partnership owed $7,400 to its suppliers. 2. Principal of $6,800 was paid on the mortgage. Interest expense incurred on the mortgage was $2,100, all of which was paid by December 31, 20X7. 3. Principal of $3,300 was paid on the installment note. Interest expense incurred on the installment note was $2,100, all of which was paid by December 31, 20X7. 4. Sales on account amounted to $162,500. At December 31, 20X7, customers owed the partnership $21,900. 5. Selling and general expenses, excluding depreciation, amounted to $34,100. At December 31, 20X7, the partnership owed $6,800 of accrued expenses. Depreciation expense was $6,600. 6. Each partner withdrew $220 each week in anticipation of partnership profits. 7. The partnership’s inventory at December 31, 20X7, was $21,600. 8. The partners allocated the net income for 20X7 and closed the accounts. Additional Information On January 1, 20X8, the partnership decided to admit Hill to the partnership. On that date, Hill invested $93,480 of cash into the partnership for a 20 percent capital interest. Total partnership capital after Hill was admitted totaled $452,000. Required: a. Prepare journal entries to record the formation of the partnership on January 1, 20X7, and to record the events that occurred during 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round the final answers to nearest dollar amount)

Answer 1

Answer a.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
a.	Cash	112,300
	Inventory	80,200
	Land	131,500
	Equipment	101,100
	Mortgage Payable		50,300
	Installment Note Payable		21,100
	Jordan, Capital		221,600	$61,400 + $80,200 + $101,100 - $21,100
	O'Neal, Capital		132,100	$50,900 + $131,500 - $50300
	(To record the Investment by the partners)
A.	Inventory	31,300
	Cash		23,900	$31,300 - $7,400
	Accounts Payable		7,400
	(To record the purchase of inventory)
B.	Mortgage Payable	6,800
	Interest Expense	2,100
	Cash		8,900
	(To record the installment on motgage paid)
C.	Installment Note Payable	3,300
	Interest Expense	2,100
	Cash		5,400
	(To record the installment on note paid)
D.	Accounts Receivable	21,900
	Cash	140,600		$162,500 - $21,900
	Sales		162,500
	(To record the sales)
E.	Selling & General Expenses	34,100
	Cash		27,300	$34,100 - $6,800
	Accrued Expenses Payable		6,800
	(To record the selling & general expenses)
F.	Depreciation Expense	6,600
	Accumulated Depreciation		6,600
	(To record the depreciation expenses)
G.	Jordan, Drawing	11,440		$220 X 52 Weeks
	O'Neal, Drawing	11,440		$220 X 52 Weeks
	Cash		22,880
	(To record the drawings of partners)
H.	Sales	162,500
	Income Summary		162,500
	(To record the clsoe of sales account)
I.	Cost of Goods sold	89,900		$80,200 + $31,300 - $21,600
	Inventory		89,900
	(To record the cost of Goods Sold)
J.	Income Summary	134,800
	Cost of Goods sold		89,900
	Selling & General Expenses		34,100
	Depreciation Expense		6,600
	Interest Expense		4,200
	(To record the close of expense accounts)
K.	Income Summary	27,700		$162,500 - $134,800
	Jordan, Capital		14,201
	O'Neal, Capital		13,499
	(To record the transfer of Income)
L.	Jordan, Capital	11,440
	O'Neal, Capital	11,440
	Jordan, Drawing		11,440
	O'Neal, Drawing		11,440
	(to record the closing of Drawings Accounts)

Allocation of Profits:
	Jordan	O'Neal	Total
Net Income (Loss)			27,700
Interest Allowance - 3%	6,648	3,963	10,611
Balance of Income (Loss)			17,089
Salaries	13,500	13,500	27,000
Balance of Income (Loss)			(9,911)
Balance allocated - 60%:40%	(5,947)	(3,964)	(9,911)
Balance of Income (Loss)			-
Shares to partners	14,201	13,499