Partnership Formation, Operation, and Changes in Ownership
The partnership of Jordan and O'Neal began business on January 1, 20X7. Each partner contributed the following assets (the noncash assets are stated at their fair values on January 1, 20X7):
| Jordan | O'Neal |
Cash | $ 60,000 | $ 50,000 |
Inventories | 80,000 | -0- |
Land | -0- | 130,000 |
Equipment | 100,000 | -0- |
The land was subject to a $50,000 mortgage, which the partnership assumed on January 1, 20X7. The equipment was subject to an installment note payable that had an unpaid principal amount of $20,000 on January 1, 20X7. The partnership also assumed this note payable. Jordan and O'Neal agreed to share partnership income and losses in the following manner:
| Jordan | O'Neal |
Interest on beginning capital balances | 3% | 3% |
Salaries | $12,000 | $12,000 |
Remainder | 60% | 40% |
During 20X7, the following events occurred:
1. Inventory was acquired at a cost of $30,000. At December 31, 20X7, the partnership owed $6,000 to its suppliers.
2. Principal of $5,000 was paid on the mortgage. Interest expense incurred on the mortgage was $2,000, all of which was paid by December 31, 20X7.
3. Principal of $3,500 was paid on the installment note. Interest expense incurred on the installment note was $2,000, all of which was paid by December 31, 20X7.
4. Sales on account amounted to $155,000. At December 31, 20X7, customers owed the partnership $21,000.
5. Selling and general expenses, excluding depreciation, amounted to $34,000. At December 31, 20X7, the partnership owed $6,200 of accrued expenses. Depreciation expense was $6,000.
6. Each partner withdrew $200 each week in anticipation of partnership profits.
7. The partnership's inventory at December 31, 20X7, was $20,000.
8. The partners allocated the net income for 20X7 and closed the accounts.
On January 1, 20X8, the partnership decided to admit Hill to the partnership. On that date, Hill
invested $99,800 of cash into the partnership for a 20 percent capital interest. Total partnership
capital after Hill was admitted totaled $450,000.
a. Preparejournal entries to record the formation of the partnership on January 1, 20X7, and to record the events that occurred during 20X7.
b. Prepare the income statement for the Jordan-O'Neal Partnership for the year ended December 31, 20X7.
c. Prepare a balance sheet for the Jordon-O'Neal Partnership at December 31, 20X7.
d. Prepare thejournal entry for the admission ofHill on January 1, 20X8.
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