Question

Shawn invests $125,000 cash and $70,000 Equipment to form partnership of NH CableSource. The Equipment has a notes payable of $50,000. Dan invests $80,000 cash to Nh CableSource. Show the entries to form the partnership. The allocation agreement for income is salary Shawn $35,000, Dan $25,000, annual interest allowance of %15 percent of partner beginning capital balance and the rest of income or loss divided equally. During the year Shawn withdraws $15,000 cash and Dan withdraws $10,000 cash. Net Income for the year is $125,000. Calculate the ending capital balances for Shawn and Dan.

Answer 1

A) The entries to form the partnership is as follows:

Account and Explanation	Debit ($)	Credit ($)
Cash	125,000
Equipment	70,000
Notes Payable		50,000
Shawn's Capital		145,000
(Recorded the investing of cash, equipment and notes payable in the partnership)
Cash	80,000
Dan 's Capital		80,000
(Recorded the investing of cash into the partnership firm)

B) the ending capital balances for Shawn and Dan is as follows:

Income Statement

	$	$		$
			Net Income	125,000
Salary:			Withdrawals
Shawn		35,000	Shawn	15,000
Dan		25,000	Dan	10,000
Interest Allowance
Shawn ($145,000*15%)		21,750
Dan ($80,000*15)		12,000
Income (Divided Equally)		56,250
Shawn	28,125
Dan	28,125
Total		$150,000	Total	$150,000

Capital Account

	Shawn Capital	Dan Capital		Shawn Capital	Dan Capital
Withdrawals	15,000	10,000	Balance Begining	145,000	80,000
			Salary	35,000	25,000
Ending Balance	214,875	135,125	Interest Allowance	21,750	12,000
(Balancing Figure)			Net Income	28,125	28,125
Total	229,875	145,125	Total	229,875	145,125

So,the ending capital balances for Shawn is $214,875 and Dan $135,125