7. Barbara Stone and James Lovejoy form a partnership with capital contributions of $700,000 and $800,000...

7. Barbara Stone and James Lovejoy form a partnership with capital contributions of $700,000 and $800,000 respectively. Their partnership agreement calls for Barbara Stone to receive $150,000 in salary and each partner is to receive a 15% interest allowance on the partner's beginning balance with the remaining income or loss divided equally. If the net loss for the initial year is $20,000 calculate Barbara Stone and James Lovejoy's respective share of the net loss and record the entry. 8. Dan King contributed $5,000 cash and inventory and land to a new partnership. The inventory had a book value of $1,000 and a market value of $3,000. The land had a book value of $1,500 and a market value of $4,000. The partnership also accepted a $10,000 note payable owed by Dan King to a creditor. Prepare the partnership journal entry to record Dan King's investment.

Expert Solution

7		Allocation of partnership income
			Barbara stone	James	Total
	Net income/(loss)				-20000
	Salary allowances		150000		150000
	Balance of income				-170000
	Interest allowances		105000	120000	225000
	(Initial capital investment*15%)		(700000*15%)	(800000*15%)
	Balance of income				-395000
	Balance allocated equally		-197500	-197500	-395000
	Balance of income				0
	Share of the partners		57500	-77500	-20000

	Entry:
	Date	General journal		Debit	Credit
	Dec 31.	James's capital		77500
		Income summary			20000
		Barbara stone's capital			57500
		(To close income summary account)

8	Date	General journal		Debit	Credit
		Cash		5000
		Land		4000
		Inventory		3000
		Note payable			10000
		Dan King's capital	(Plug)		2000
		(To record initial capital investments)

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