On March 1, 2008, 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 assumed responsibility for Kelley’s $92,500 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 $25,000, both are to receive an annual interest allowance of 10% of their beginning-year capital investment, and any remaining income or loss is to be shared equally. On October 20, 2008, Eckert withdrew

$34,000 cash and Kelley withdrew $20,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at December 31, 2008, 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 Check (2) Kelley, $79,250 December 31, 2008.

AppendixLO1