Question

Question 3 (15 scores) Groucho, Harpo, and Chico go into partnership on January 1, 2015. Groucho contributes Harpo $70,000, and Chico $40,000 to a business called Marx Brothers' Partnership a monthly basis, each partner is allocated income and is allowed to receive cash from the business in proportion to the capital they prov ided. Assume that Groucho receives $2,700 cash per month. Required: Part Prepare the journal entry for the initial investment. a. Part b. Det c. Prepare the journal entry that would be made in one month for the monthly distribution. ermine the monthly distribution amounts for each of the three partners Part d. Prepare the journal entry for the allocation of an annual net income of $84,000. For purposes of this journal entry, assume Sales Revenue totaled $116,000 and that all expenses, totaling $32,000, were recorded in a single account called Operating Expenses. Part e. Prepare the journal entry to close the Drawings accounts at the end of the year. Part f. Prepare a Statement of Partners' Equity (assume no additional investments made)

Answer 1

Part a.

In the books of Marx Brothers Partnership :

Date	Account Titles	Debit	Credit
		$	$
January 1, 2015	Cash	200,000
	Groucho, Capital		90,000
	Harpo, Capital		70,000
	Chicco, Capital		40,000

Part b:

Capital contribution ratio :

Groucho : 90,000 / 200,000 = 0.45

Harpo : 70,000 / 200,000 = 0.35

Chicco : 40,000 / 200,000 = 0.20

If Groucho receives $ 2,700 per month, total cash distribution = $ 2,700 / 0.45 = $ 6,000.

Harpo will receive $ 6,000 x 0.35 = $ 2,100.

Chicco will receive $ 6,000 x 0.20 = $ 1,200

Part c :

Date	Account Titles	Debit	Credit
		$	$
January 31, 2015	Groucho, Drawings	2,700
	Harpo, Drawings	2,100
	Chico, Drawings	1,200
	Cash		6,000

Part d :

Date	Account Titles	Debit	Credit
		$	$
December 31, 2015	Sales Revenue	116,000
	Groucho, Capital ( $ 84,000 x 0.45)		37,800
	Harpo, Capital ( $ 84,000 x 0.35)		29,400
	Chicco, Capital ( $ 84,000 x 20)		16,800
	Operating Expenses		32,000

Part e.

Date	Account Titles	Debit	Credit
		$	$
December 31, 2015	Groucho, Capital	32,400
	Groucho, Drawings		32,400
December 31, 2015	Harpo, Capital	25,200
	Harpo, Drawings		25,200
December 31, 2015	Chicco, Capital	14,400
	Chicco, Drawings		14,400

Part f:

Marx Brothers' Partnership Statement of Partners' Equity For the year ended December 31, 2015
	Groucho	Harpo	Chico
Capital contribution , January 1, 2015	$ 90,000	$ 70,000	$ 40,000
Add: Share of Net Income	37,800	29,400	16,800
Total	127,800	99,400	56,800
Less: Drawings	(32,400)	(25,200)	(14,400)
Partners' Equity, December 31, 2015	$ 95,400	$ 74,200	$ 42,400