On March 1, 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 took Kelley’s $92,500 longterm note payable associated with the land and building. The partners agreed to share income as follows: Eckert gets an annual salary allowance of $25,000, both get an annual interest allowance of 10% of their initial capital investment, and any remaining income or loss is shared equally. On October 20, Eckert withdrew $34,000 cash and Kelley withdrew $20,000 cash. After adjusting and closing entries are made to the revenue and expense accounts at December 31, the Income Summary account had a credit balance of $90,000. 1. Prepare journal entries to record (a) the partners’ initial capital investments, (b) their cash withdrawals, and (c) the December 31 closing of both the withdrawals and Income Summary accounts. 2. Determine the balances of the partners’ capital accounts as of December 31.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
On March 1, 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 took Kelley’s $92,500 longterm
note payable associated with the land and building. The partners agreed to share income as follows:
Eckert gets an annual salary allowance of $25,000, both get an annual interest allowance of 10% of their initial
capital investment, and any remaining income or loss is shared equally. On October 20, Eckert withdrew
$34,000 cash and Kelley withdrew $20,000 cash. After adjusting and closing entries are made to the revenue
and expense accounts at December 31, the Income Summary account had a credit balance of $90,000.
1. Prepare
and (c) the December 31 closing of both the withdrawals and Income Summary accounts. 2. Determine the balances of the partners’ capital accounts as of December 31.
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