Question

In: Accounting

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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