Sharon and Rebecca agreed to combine their businesses and formed a partnership on 1 July 2017....

Sharon and Rebecca agreed to combine their businesses and formed a partnership on 1 July 2017. The fair value and the carrying amount of the assets contributed by each partner, and the liabilities assumed by the partnership are shown below:

The partners were entitled to 5 per cent interest on the initial capital. Rebecca ran the partnership and received a salary of $70,000. The profit for the year ended 30 June 2018 was $200,000 before providing for interest and salary. Sharon and Rebecca agreed to share the residual on a 60:40 basis respectively. Assume that they use the fixed capital accounts method (Method 2).

Required:
Prepare the required journal entries to record all the transactions related to establishing the partnership and allocating the profit. Narrations are not required. Show supporting calculations

sharon Rebrcca

	Carrying amount	Fair value	Carrying amount	Fair value
Cash at bank	16200	16200	15800	15800
Accounts receivable	22800	22800	21400	21400
inventory	52000	78000	125000	72000
Equipment	112000	75000	125000	72000
Accumulated depreciation	(48600)	-	(46500)	-
Accounts payable	13400	13400	12800	12800

Solutions

Expert Solution

Journal Entry to Form Partnership

1 July 2017	Cash at Bank	32000
	Accounts Receivable	44200
	Inventory	150000
	Equipment	147000
	Accounts Payable		26200
	Sharon Capital Account		178600
	Rebecca Capital Account		168400

	(Entry Recorded on Far Market Value -Assets & Liability of both the Partners)



Income Distribution

30 June, 2018	Profit for the year		200000
	Interest on Capital 5%
	Sharon Current Account	8930		5% on $1,78,600
	Rebecca Current Account	8420		5% on $1,68,400
	Salary-Rebecca	70000
	Balance Profit C/d	112650
		200000	200000

	Balance B/d		112650	Transferred to Sharon Current Account 60%
	Transferred to Partners			Transferred to Rebecca Current Account 40%
	Sharon Current Account 60%	67590
	Rebecca Current Account 40%	45060
		112650	112650

ekkarill92 answered 1 year ago

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