On March 1 2017 Eckert and Kelley formed a partnership Ecker

On March 1, 2017, Eckert and Kelley formed a partnership. Eckert contributed $80,000 cash and Kelley contributed land valued at $64,000 and a building valued at $94,000. The partnership also assumed responsibility for Kelley’s $70,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Eckert is to receive an annual salary allowance of $31,500, both are to receive an annual interest allowance of 12% of their beginning-year capital investment, and any remaining income or loss is to be shared equally. On October 20, 2017, Eckert withdrew $30,000 cash and Kelley withdrew $23,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at December 31, 2017, the Income Summary account had a credit balance of $76,000.

Required:
1a. & 1b. Prepare journal entries to record the partners\' initial investments and their subsequent cash withdrawals.
1c. Determine the partners\' shares of income, and then prepare journal entries to close Income Summary and the partners\' Withdrawals accounts.
2. Determine the balances of the partners’ capital accounts as of December 31, 2017.

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Prepare journal entries to record the partners\' initial capital investments and their subsequent cash withdrawals.

Journal entry worksheet

Record the partners\' initial capital investment.

Note: Enter debits before credits.

Determine the partners’ shares of income, and then prepare journal entries to close Income Summary and the partners\' Withdrawals accounts. (Enter all values as positive amounts.)

Determine the balances of the partners\' capital accounts as of December 31, 2017.

Date General Journal Debit Credit Oct 20, 2017

Solution

Answer 1(a) & 1(b). Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1-Mar-17 Cash      80,000.00 Land      64,000.00 Building      94,000.00 Long term Notes Payable     70,000.00 Eckert, Capital     80,000.00 Kelly, Capital     88,000.00 (Record the partners\' intial investments) 20-Oct-17 Eckert, Withdrawls      30,000.00 Kelly, Withdrawls      23,000.00 Cash     53,000.00 (record the partners\' Withdrawls) Answer 1©. Allocation of Partnership Income Eckert Kelly Total Net Income                     -                       -      76,000.00 Salary Allowances      31,500.00                     -      31,500.00 Balance of Income    44,500.00 Interest Allowances        9,600.00     10,560.00    20,160.00 Balance of Income    24,340.00 Balance Allocated Equally      12,170.00     12,170.00    24,340.00 Balance of Income                   -   Share of Partners      53,270.00     22,730.00 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 Eckert, Capital      30,000.00 Kelly, Capital      23,000.00 Eckert, Withdrawls     30,000.00 Kelly, Withdrawls     23,000.00 (Record the close of withdrawl accounts) 31-Dec-17 Income Summary      76,000.00 Eckert, Capital     53,270.00 Kelly, Capital     22,730.00 (record to close the Income Summary Account) Answer 2. Capital Account Balances Eckert Kelly Intial Investments      80,000.00     88,000.00 Withdrawls    (30,000.00) (23,000.00) Share of Income      53,270.00     22,730.00 Ending Balances    103,270.00     87,730.00