Question

On May 1, Gosworth and Jordan formed a partnership. Gosworth contributed cash of $100,000 and equipment valued at $142,000. Jordan contributed land valued at $130,000 and a building valued at $250,000. The partnership also assumed responsibility for Jordan's $120,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Gosworth is to receive a salary allowance of $38,000, both are to receive an annual interest allowance of 8% of their beginning-year capital investments, and any remaining income or loss is to be shared equally. During the year, Gosworth withdrew $40,000 and Jordan withdrew $42,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at the end of the year, the Income Summary account had a credit balance of $140,000. Prepare the journal entries to record (a) the partners' initial capital investments, (b) their cash withdrawals, and (c) closing of both the Withdrawals and Income Summary accounts.

Answer 1

(a) Cash 100,000

Equipment          142,000

Land 130,000

Building                250,000

Long-term note payable 120,000

Gosworth, Capital            242,000

Jordan, Capital   260,000

(b) Gosworth, Withdrawals 40,000

Jordan, Withdrawals       42,000

Cash 82,000

(c) Gosworth, Capital            40,000

Jordan, Capital 42,000

Gosworth, Withdrawals 40,000

Jordan, Withdrawals       42,000

Income Summary 140,000

Gosworth, Capital 88,280

Jordan, Capital 51,720

Share to Gosworth Share to Jordan Income Allocated

Total net income $140,000

Salary Allowance $38,000 (38,000)

Balance of income $102,000

Allocated as interest

Gosworth (8% on $242,000) 19,360

Jordan (8% on $260,000) 20,800 (40,160)

Balance of income $61,840

Allocated equally 30,920 30,920 (61,840)

Shares of the partners $88,280                 $51,720 $0