1.

Jim Steele and John Rich operate separate auto repair shops as proprietorships. On January 1, 2019, they decide to combine their separate businesses to form Steele Rich Auto Repair, a partnership. Information from their separate balance sheets is presented below:

Steele Auto Repair Rich Auto Repair

Cash................................................................................ $ 5,000 $10,000

Accounts receivable......................................................... 8,000 5,000

Allowance for doubtful accounts...................................... 1,000 500

Accounts payable............................................................. 3,000 6,000

Notes payable.................................................................. 5,000

Salaries payable............................................................... 1,000 500

Equipment...................................................................... 12,000 26,000

Accumulated depreciationequipment........................... 2,000 4,000

It is agreed that the expected realizable value of Steele's accounts receivable is $5,000 and Rich's receivables is $4,000. The fair value of Steele's equipment is $15,000 and Rich's equipment is $24,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the notes payable on Rich's balance sheet that he will pay himself.

Instructions

Prepare the journal entries necessary to record the formation of the partnership.

2.

LOUD & PROUD MUSIC

Adjusted Trial Balance

December 31, 2021

Debit Credit

Current assets............................................................................................... $ 125,000

Property, plant, and equipment......................................................................... 30,000

Current liabilities......................................................................................................... $ 20,000

Long-term debt............................................................................................................ 85,000

Loud, capital................................................................................................................ 50,000

Loud, drawings.................................................................................................. 20,000

Proud, capital.............................................................................................................. 75,000

Proud, drawings................................................................................................ 15,000

Sales revenue................................................................................................................ 370,000

Operating expenses ...................................................................................... 410,000

$ 600,000 $ 600,000

The partnership agreement stipulates that a division of partnership profit or loss is to be made as follows:

1. A salary allowance of $ 40,000 to Loud and $ 50,000 to Proud.

2. The remainder is to be divided equally.

Instructions

a) Prepare a schedule that shows the division of profit/loss to each partner.

b) Prepare the closing entries for the division of profit/loss and for the drawings accounts at December 31, 2021.

3.

Bob Spade and Ken Lundy have formed the partnership Art World, and have capital balances of $ 120,000 and $ 105,000, respectively on January 1, 2021. On June 1, 2021, Lundy invested an additional $ 20,000. Also, during the year, Spade withdrew $ 16,000 and Lundy withdrew $ 22,000. Sales for the year amounted to $ 850,000 and expenses were $ 520,000. After taking salary allowances of $ 60,000 and $ 90,000, respectively, Spade and Lundy share any remaining profit and losses on a 40% and 60% ratio, respectively.

Instructions

a) Prepare a schedule that shows the division of profit to each partner.

b) Prepare the closing entries at December 31, 2021, for the Art World partnership.

c) Prepare a statement of partners' equity for 2021.

4.

At September 30, 2021, C. Saber and J. Wong, the two partners of City Landscaping, had capital account balances of $ 25,000 each. D. Walker joined the partnership on September 30, 2021 and received a 1/3 interest in the partnership in exchange for a capital contribution of $ 40,000.

For the year ended September 30, 2022, City Landscaping had profit of $ 126,000, which is allocated equally to the three partners. Withdrawals during the year were $ 18,000 each by Saber and Wong, and $ 14,000 by Walker.

Instructions

a) Record the transaction on September 30, 2021 admitting Walker into the partnership.

b) Calculate the balance of each partners capital account after the transaction.