Question

On 1 July, 2014 Kaman and Kumon agreed to form a partnership in Superannuation Consulting Service. Kumon invested $450,000 cash and Kaman brought his business into the partnership as follows:

	Andi
Cash	35,000
Accounts Receivable	40,000
Office Supplies	8,000
Equipment	150,000
Accumulated Depreciation?Equipment	25,000
Building	500,000
Accumulated Depreciation?Building	120,000
Accounts Payable	80,000
Bank Loan	90,000

Based on estimation and existing market price, Kaman and Kumon agreed to value the assets as follows:

1) Accounts receivable $34,000

2) Office supplies $7,000

3) Equipment $125,000

4) Building $550,000

Both partners agreed to use allowance method in managing the bad debt accounts receivable. Kaman and Kumon agreed to share profit and loss by giving salaries per annum $25,000 to Kaman and $15,000 to Kumon, interest on capital 6% per annum. In addition, partners will be charge of interest on drawing 8% with the remainder distributed base on capital balance.

Required:

a) Give the journal entries to record the formation of the partnership on 1 July 2014

b) Assume at the end of the financial year 30 June 2017, Kaman and Kumon Capital showed $650,000 and $350,000 respectively. In addition Kumon and Kaman drawing showed $30,000 and $60,000. If the net profit of the year was $12,500, give the journal entries to distribute the earnings using the fixed capital balance method (method 2). Show all workings including profit distribution table

Answer 1

Journal Entries-
		Debit	Credit
1st July, 2014	Cash	$450000
	Kumon Capital		$450000
	( To record Cash Contribution by Kumon)
1st July, 2014	Cash	$35000
	Account Receivable	$34000
	Office Supplies	$7000
	Equipment	$125000
	Building	$550000
	Account Payable		$80000
	Bank Loan		$90000
	Accumulated Depreciation		$145000
	Kaman Capita		$436000
	=35000+34000+7000+125000+550000-80000-90000-145000
	(To record Capital Contribution by Kaman)
30th June, 2015	Net Income	$40000
	Kumon Capital		$25000
	Kaman Capital		$15000
	(To record Salary paid to partners)
	Net Income	$60000
	Kumon Capital (350000*6%)		$21000
	Kaman Capital (650000*6%)		$39000
	(To record Interest on Capital to Partners)
	Kumon Capital	$30625
	Kaman Capital	$56875
	Net Income		$87500
	( To record Distribution of profit to Partners)
Profit Distribution Table
Net Income =$12500	Distributed to Partner Kumon	Distributed to Partner Kaman	Undistributed Profit
Profit To Distribute			$12500
Salary Allowance	$15000	$25000	($40000)
Interest on Capital	$21000	$39000	($60000)
Remaining to distribute			($87500)
Final Distribution (3.5:6.5)	=87500*3.5/10	=87500*6.5/10
	($30625)	($56875)	$87500
Total	$5375	$7125	0