Salem and Durham entered into a partnership to provide supply chain management and logistic services in the Silicon Valley region of California. In their agreed Articles of Partnership, the partners acknowledged the following:Sharing of profits and losses:Compensate each partner $125 per hour for their billable hourly consulting work performed.Salem receives an additional $3,000 monthly as the partnership’s Chief Operating Officer (COO);Durham receives an additional $2,500 monthly as the partnership’s Chief Technology Officer (CTO),Any remaining profits or losses are divided equally between the partners. Each partner is permitted but not required to withdraw no more than $800 per month from the partnership and such withdrawals will be accounted for as direct reductions of the withdrawing partner’s capital balance. They will begin their partnership with equal beginning capital balances. On January 1, 20x1, when they formed the partnership, each partners’ contributions were as follows:Salem invested cash of $50,000.Durham invested $140,000 in cash and she invested office equipment with a book value of $10,000 and fair value of $25,000.In recognition of Salem’s expertise in supply chain management and distribution logistics, the partners have agreed to begin their partnership with equal capital balances, as noted in the partnership agreement above. For fiscal year-ending 20x1, the total partnership's net income was $410,000. Additionally, in 20x1, Salem worked 1,100 billable partnership hours, and Durham worked 1,500 billable hours. Lastly, each partner withdrew their allotted $800 per month throughout 20x1.RequiredAssume that on 1/1/20x2, Walter Winston invests $100,000 in exchange for a 20% interest in the partnership. Salem and Durham’s partnership sharing ratios then are 40% each.Using the bonus method, prepare a journal entry admitting Winston into the partnership. Any bonus is allocated based on the partnership profit and loss sharing ratio.Prepare a schedule showing the balance of each partners’ capital account, after admitting Walter Winston.

1. The equal has to be distributed to all the partners as agreed by the partners. Partner's…

Answered: Salem and Durham entered into a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Salem and Durham entered into a partnership to provide supply chain management and logistic services in the Silicon Valley region of California.

In their agreed Articles of Partnership, the partners acknowledged the following:

Sharing of profits and losses:
Compensate each partner $125 per hour for their billable hourly consulting work performed.
Salem receives an additional $3,000 monthly as the partnership’s Chief Operating Officer (COO);

Durham receives an additional $2,500 monthly as the partnership’s Chief Technology Officer (CTO),

Any remaining profits or losses are divided equally between the partners.

Each partner is permitted but not required to withdraw no more than $800 per month from the partnership and such withdrawals will be accounted for as direct reductions of the withdrawing partner’s capital balance.

They will begin their partnership with equal beginning capital balances.

On January 1, 20x1, when they formed the partnership, each partners’ contributions were as follows:

Salem invested cash of $50,000.
Durham invested $140,000 in cash and she invested office equipment with a book value of $10,000 and fair value of $25,000.
In recognition of Salem’s expertise in supply chain management and distribution logistics, the partners have agreed to begin their partnership with equal capital balances, as noted in the partnership agreement above.

For fiscal year-ending 20x1, the total partnership's net income was $410,000.

Additionally, in 20x1, Salem worked 1,100 billable partnership hours, and Durham worked 1,500 billable hours.

Lastly, each partner withdrew their allotted $800 per month throughout 20x1.

Required

Assume that on 1/1/20x2, Walter Winston invests $100,000 in exchange for a 20% interest in the partnership. Salem and Durham’s partnership sharing ratios then are 40% each.
1. Using the bonus method, prepare a journal entry admitting Winston into the partnership. Any bonus is allocated based on the partnership profit and loss sharing ratio.
Prepare a schedule showing the balance of each partners’ capital account, after admitting Walter Winston.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement 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, and drawings of a partner.

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