Prepare the

Explanation of Solution
A partnership is an unincorporated form of business which is formed by an agreement, owned and managed mutually by two or more individuals, who invest their assets in the business and share the liabilities and profits among themselves.
Prepare the journal entry:
Date | Account titles and Explanation | Debit | Credit |
January 1 | Cash | $600,000 | |
Inventory | $400,000 | ||
Gain on sale of assets | $200,000 | ||
(To record sale of inventory) |
Table (1)
- Cash is an asset and it is increased. Therefore, debit cash account by $600,000.
- Inventory is an asset and it is decreased. Therefore, credit inventory account by $400,000.
- Gain on sale of assets is a component of partners’ equity and it is increased. Therefore, credit gain on sale of assets account by $200,000.
Date | Account titles and Explanation | Debit | Credit |
January 1 | Gain on sale of assets | $200,000 | |
Partner P, Capital | (1) $60,000 | ||
Partner JM, Capital | (2) $60,000 | ||
Partner JS, Capital | (3) $40,000 | ||
Partner M, Capital | (4) $40,000 | ||
(To record allocation of gain) |
Table (2)
- Gain on sale of assets is a component of partners’ equity and it is decreased. Therefore, debit gain on sale of assets account by $200,000.
- Partner P, Capital is a component of partners’ equity and it is increased. Therefore, debit Partner P account by $60,000.
- Partner JM, Capital is a component of partners’ equity and it is increased. Therefore, debit Partner JM account by $60,000.
- Partner JS, Capital is a component of partners’ equity and it is increased. Therefore, debit Partner JS account by $40,000.
- Partner M, Capital is a component of partners’ equity and it is increased. Therefore, debit Partner M account by $40,000.
Working notes:
(1) Calculate the share of gain on sale of assets for Partner D:
(2) Calculate the share of gain on sale of assets for Partner JM:
(3) Calculate the share of gain on sale of assets for Partner JS:
(4) Calculate the share of gain on sale of assets for Partner M:
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- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
