In: Accounting
On March 1, 2017, Eckert and Kelley formed a partnership. Eckert
contributed $73,000 cash and Kelley contributed land valued at
$58,400 and a building valued at $88,400. The partnership also
assumed responsibility for Kelley’s $63,000 long-term note payable
associated with the land and building. The partners agreed to share
income as follows: Eckert is to receive an annual salary allowance
of $30,000, both are to receive an annual interest allowance of 9%
of their beginning-year capital investment, and any remaining
income or loss is to be shared equally. On October 20, 2017, Eckert
withdrew $29,000 cash and Kelley withdrew $22,000 cash. After the
adjusting and closing entries are made to the revenue and expense
accounts at December 31, 2017, the Income Summary account had a
credit balance of $100,000.
Required:
1a. & 1b.
Prepare journal entries to record the partners' initial 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, 2017.
Date |
Accounts title |
Debit |
Credit |
Part 1 ‘a’ |
|||
Mar-01 |
Cash |
$ 73,000.00 |
|
Eckert Capital |
$ 73,000.00 |
||
(Capital contributed by Eckert) |
|||
Mar-01 |
Land |
$ 58,400.00 |
|
Building |
$ 88,400.00 |
||
Long Term Notes payable |
$ 63,000.00 |
||
Kelley Capital |
$ 83,800.00 |
||
(Capital contributed by Kelley) |
|||
Part 1 ‘b’ |
|||
Oct-20 |
Eckert's Withdrawals (or Drawings) |
$ 29,000.00 |
|
Cash |
$ 29,000.00 |
||
(withdrawals by Eckert) |
|||
Oct-20 |
Kelly's Withdrawals (or Drawings) |
$ 22,000.00 |
|
Cash |
$ 22,000.00 |
||
(withdrawals by Kelly) |
|||
Part 1 ‘b’: Above Oct 20 entries can be combined as one entry as: |
|||
Oct-20 |
Eckert's Withdrawals (or Drawings) |
$ 29,000.00 |
|
Kelly's Withdrawals (or Drawings) |
$ 22,000.00 |
||
Cash |
$ 51,000.00 |
||
(Withdrawals by partner) |
Working |
Eckert |
Kelly |
|
A |
Beginning Capital balance |
$ 73,000.00 |
$ 83,800.00 |
B |
Interest on capital rate |
9% |
9% |
C=A x B |
Interest on Capital |
$ 6,570.00 |
$ 7,542.00 |
D |
Salary Allowances |
$ 30,000.00 |
$ - |
E= C + D |
Total Distributions |
$ 36,570.00 |
$ 7,542.00 |
Partner's Share of Income |
Undistributed Profits |
||
Eckert |
Kelly |
||
Net Income |
$ 100,000.00 |
||
Interest on Capital |
$ 6,570.00 |
$ 7,542.00 |
$ (14,112.00) |
Remaining balance |
$ 85,888.00 |
||
Salary Allowance |
$ 30,000.00 |
$ - |
$ (30,000.00) |
Remaining balance |
$ 55,888.00 |
||
Remaining profits distributed equally |
$ 27,944.00 |
$ 27,944.00 |
$ (55,888.00) |
Total |
$ 64,514.00 |
$ 35,486.00 |
$ - |
Partners' Share of Income: |
|
Eckert |
$ 64,514.00 |
Kelly |
$ 35,486.00 |
Total Net Income |
$ 100,000.00 |
----Entries to close Income Summary and Drawings accounts
Date |
Accounts title |
Debit |
Credit |
31-Dec |
Income Summary |
$ 100,000.00 |
|
Eckert Capital |
$ 64,514.00 |
||
Kelley Capital |
$ 35,486.00 |
||
(Income summary closed) |
|||
31-Dec |
Eckert Capital |
$ 29,000.00 |
|
Eckert's Withdrawals (or Drawings) |
$ 29,000.00 |
||
(Eckert drawings closed) |
|||
31-Dec |
Kelley Capital |
$ 22,000.00 |
|
Kelly's Withdrawals (or Drawings) |
$ 22,000.00 |
||
(Kelly's drawings closed) |
Working |
Eckert |
Kelly |
|
A |
Beginning Capital balances |
$ 73,000.00 |
$ 83,800.00 |
B |
Interest on Capital |
$ 6,570.00 |
$ 7,542.00 |
C |
Salary Allowance |
$ 30,000.00 |
$ - |
D |
Share of Profits |
$ 27,944.00 |
$ 27,944.00 |
E |
Drawings |
$ 29,000.00 |
$ 22,000.00 |
F = A+B+C+D - E |
Balances on 31 Dec 2017 |
$ 108,514.00 |
$ 97,286.00 |