Question

On March 1, 2017, Eckert and Kelley formed a partnership. Eckert contributed $82,500 cash and Kelley contributed land valued at $60,000 and a building valued at $100,000. The partnership also assumed responsibility for Kelley's $92,500 long-term note payable associated with the land and building. The partners agreed to share income as follows: Eckert is to receive an annual salary allowance of $25,000, both are to receive an annual interest allowance of 10% of their beginning-year capital investment, and any remaining income or loss is to be shared equally. On October 20, 2017, Eckert withdrew $34,000 cash and Kelley withdrew $20,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at December 31, 2017, the Income Summary account had a credit balance of $90,000. Required: 1a. & 1b. Prepare journal entries to record the partners' initial capital investments and their subsequent cash withdrawals. 1c. Determine the partners' shares of income, and then prepare journal entries to close Income Summary and the partners' Withdrawals accounts. 2. Determine the balances of the partners' capital accounts as of December 31, 2017

Answer 1

Answer :

1a.       2017

Mar. 1	Cash........................................................................................	82,500
	Land........................................................................................	60,000
	Building..................................................................................	100,000
	Long-Term Note Payable.....................................................		92,500
	Eckert, Capital.....................................................................		82,500
	Kelley, Capital.....................................................................		67,500
	Record initial capital investments.

1b.       2017

Oct. 20	Eckert, Withdrawals..............................................................	34,000
	Kelley, Withdrawals..............................................................	20,000
	Cash....................................................................................		54,000
	Record partners’ withdrawals.

1c.       2017

Dec. 31	Eckert, Capital.......................................................................	34,000
	Kelley, Capital.......................................................................	20,000
	Eckert, Withdrawals...........................................................		34,000
	Kelley, Withdrawals...........................................................		20,000
	Close withdrawals accounts.

Dec. 31	Income Summary..................................................................	90,000
	Eckert, Capital....................................................................		58,250
	Kelley, Capital....................................................................		31,750
	Close Income Summary account.

2.

Capital account balances	Eckert	Kelley
Initial investment.......................................	$ 82,500	$ 67,500
Withdrawals..............................................	(34,000)	(20,000)
Share of income*.......................................	58,250	31,750
Ending balances........................................	$106,750	$ 79,250

	*Supporting calculations	Eckert	Kelley	Total
Net income...........................................................			$90,000
Salary allowance
Eckert..................................................................	$25,000
Total salary allowance..........................................			25,000
Balance of income...............................................			65,000
Interest allowances
Eckert (10% on $82,500)....................................	8,250
Kelley (10% on $67,500)....................................		$ 6,750
Total interest allowances......................................			15,000
Balance of income...............................................			50,000
Balance allocated equally
Eckert..................................................................	25,000
Kelley..................................................................		25,000
Total allocated equally.........................................			50,000
	Balance of income..............................................	_______	_______	$     0
	Shares of the partners.........................................	$58,250	$31,750