Question

fundamental accounting principle

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

Solution-

1a. & 1b.)

Date	General Journal	Debit ($)	Credit ($)
March 1.	Cash	74000
	Land	59200
	Building	89200
	To Long term notes payable		64000
	To Eckert capital		74000
	To Kelley capital		84400
	(Record, the partners initial investments)
Oct 20	Eckert withdrawals	31000
	Kelley withdrawals	24000
	To Cash		55000
	(Record , the partners withdrawals)

1c.)

Computation of Partners share of income

	Eckert	Kelley	Total
Net income	-	-	$95000
Less :- Salary allowances	$31000	-	$31000
Balance of Income	-	-	$64000
Less :- Interest allowances	[$74000*10%]= $7400	[$84400*10%] = $8440	$15840
Balance of Income	-	-	$48160
Balance allocated equally	$24080	$24080	$48160
Balance of Income	-	-	-
Share of Partners	$62480	$32520	-

Date	General Journal	Debit ($)	Credit ($)
Dec 31.	Eckert Capital	31000
	Kelley Capital	24000
	To Eckert withdrawals		31000
	To Kelley withdrawals		24000
	(Record , the closing of withdrawals accounts)
	Income Summary	95000
	To Eckert Capital		62480
	To Kelley Capital		32520
	(Record , the closing of income summary accounts)

2)

Computation the balances of the partners' capital accounts

Particulars	Eckert	Kelley
Initial Investments	$74000	$84400
Withdrawals	($31000)	($24000)
Share of Income	$62480	$32520
Ending Balances	$105480	$92920