Question

Problem 11-6A Partnership entries, profit allocation, admission of a partner LO2, 3, 4 On June 1, 2020, Jill Bow and Alsha Adams formed a partnership to open a gluten free commercial bakery, contributing $291,000 cash and $382,000 of equipment, respectively. The partnership also assumed responsibility for a $51,000 note payable associated with the equipment. The partners agreed to share profits as follows: Bow is to receive an annual salary allowance of $161.000, both are to receive an annual Interest allowance of 5% of their original capital investments, and any remaining profit or loss is to be shared 40/60 (to Bow and Adams, respectively). On November 20, 2020, Adams withdrew cash of $111,000. At year-end, May 31, 2021, the Income Summary account had a credit balance of $490,000. On June 1, 2021, Peter Williams Invested $131,000 and was admitted to the partnership for a 20% interest in equity Required: 1. Prepare journal entries for the following dates. a. June 1, 2020 View transaction list Journal entry worksheet Record the formation of partnership Note: Enter debits before credits Date General Journal Debit Credit June 01, 2020

Answer 1

Part 1

No.	Date	Account titles and explanation	Debit	Credit
a	June 1, 2020	Cash	291000
		Equipment	382000
		J. Bow, Capital		291000
		A. Adams, Capital		331000
		Notes Payable		51000
		To record formation of partnership
b	November 20, 2020	A. Adams, Withdrawals	111000
		Cash		111000
		To record withdrawal by partner.
c	May 31, 2021	Income summary	410000
		J. Bow, Capital		296820
		A. Adams, Capital		193180
		To record closing of net income to capital
d	June 1, 2021	Cash	131000
		J. Bow, Capital (226400-131000)*40%	38160
		A. Adams, Capital (226400-131000)*60%	57240
		P. Williams, Capital (1132000*20%)		226400
		To record the admission of new partner

	J. Bow	A. Adams	Total
Net income			490000
Salary allowance:
Bow	161000
Interest allowances:
Bow (10% on $291,000)	29100
Adams (10% on $331,000)		33100
Total salaries and interest allocation	190100	33100	223200
Balance of income to be allocated			266800
Balance allocated 40/60:
Bow (40% × $266800)	106720
Adams (60% × $266800)		160080
Total allocated 40/60			(266800)
Balance of income	296820	193180	0
Shares of the partners	259860	150140	410000

Total equity prior to admission of new partner = (291000+296820)+(331000-111000+193180) = 1001000

Total equity after admission of new partner = 1001000+131000 = 1132000

Part 2

J. Bow, Capital (291000+296820-38160)	$549660
A. Adams, Capital (331000-111000+193180-57240)	$355940
P. Williams, Capital	$226400