Question

Accounting for Partnerships 1) Shawn. Dan and Mitchell start Cable Source partnership on January 1" Shawn invests $30000 cash and $10000 of Equipment. Dan and Mitch invest 20000, and $10,000 cash respectively. Income is distribution based on each Owners % proportion of capital. Show the journal entry's) 2) On January 30 Shawn sells half of his partnership interest to Phil for $25,000 cash. Show the entry (s). 3) On April 30" Dan withdraws from the partnership and receives $26,000. Income and loss sharing ratio's are equal for all partners. Show the entry (s). 4) June 1" Shawn withdraws $2000 cash. 5) December 31" Net income for the partnership is 560.000. Show the entry (s) closing out withdrawals and income summary account. What is each partners ending capital balance?

Answer 1

Journal Entries of Cable Source Partnership Firm for the period
Date	Particulars	Debit	Credit
1-Jan	Cash A/c	$60,000
	Equipment A/c	$10,000
	Shawn's Capital A/c		$40,000
	Dan's Capital A/c		$20,000
	Mitchell's Capital A/c		$10000
[To record Partner's Capital brought into business]
30-Jan	Shawn's Capital A/c	$20,000
	Phill's Capital A/c		$20,000
[To record half of shawn's partneship share transferred to Phill]​​​​​​
30-Apr	Dan's Capital A/c	$20,000
	Shawn's Capital A/c	$2,000
	Mitchell's Capital A/c	$2,000
	Phill's Capital A/c	$2,000
	Cash A/c		$26,000
[To record withdrawal of Dan from partnership for $26000 and the loss of $6000 is distributed equally to all the partners]
1-Jun	Shawn's Capital A/c	$2,000
	Cash A/c		$2,000
[To record withdrwal of cash $2,000 made by shawn]
31-Dec	Income Summary A/c	$60,000
	Shawn's Capital A/c		$38,857
	Mitchell's Capital A/c		$19,429
	Phill's Capital A/c		$43,714
[To record the distribution of profits among all partners on outstanding balance ratio]

Note: When a partner sells his partnership share to any other person the result of loss or gain does not affect the firms capital balance .

So when shawn sells his half share which worth's $2000 to phill at $25,000 the result of $5,000 does not affects the company. So $20,000 is recorded as Phill's Capital which is half share of Shawn.

Statement of Cable Source Partnership Equity for the year ended December 31
Particulars	Shawn	Dan	Mitchell	Phill
Balances on January 1	$40,000	$20,000	$10,000
Shawn sells half of Partnership to Phill ($40,000 / 2 = $20,000)	($20,000)			$20,000
Dan withdraws from Partnership	($2,000)	($20,000)	($2,000)	($2,000)
Shawn Drawings	($2,000)
Balances before pofits share	$16,000	$0	$8,000	$18,000
Net income for the year share on outstanding balances ratio (8:4:9)	$22,857		$11,429	$25,714
Balances on December 31	$38,857	$0	$19,429	$43,714

Note: 1)The Outstanding capital balance of Dan before withdrawal is $20,000 but he receives $26,000. $6,000 ($26,000 - $20,000) is loss to the firm which is beared by all the three partners equally as said in the question.

So, the loss distributed equally to all the partners whcih is $2000 ($6000 / 3).

Net Income is distributed in owner's % proportional of capital which is as follows.

Total outstanding Capital = $16,000 + $8,000 + $18,000 = $42,000

Shawn's Share of Profit = $60,000 * ($16,000 / $42,000) = $22,857

Mitchell's Share of Profit = $60,000 * ($8,000 / $42,000) = $11,429

Phill's Share of Profit = $60,000 * ($18,000 / $42,000) = $25,714