Amy, Arianna, and Anna who had been operating independent businesses decided to form a partnership, AAA Prosperity, as from 1 January 2019. The agreement set out the following basic arrangements:

Amy to contribute $35,000 in cash, and to act as managing partner at a salary of $22,500 per year.

Arianna to contribute office furniture valued at $27,000 with a bank loan of $12,000, computers of $4,000 and $15,000 in cash.

Anna to contribute motor vehicle valued at $13,000, and debtors of $12,000.

Interest for the period is to be allowed to partners at the rate of 10% p.a. on their original capital contributions. Arianna withdrew $4,000 on 1 July 2020, and interest at 15% p.a. to be charged on her drawings.

Residual profits or losses to be shared among Amy, Arianna, and Anna in the proportion of 2:2:1 respectively.

Ignore GST and narrations are NOT required.

Required

a) Prepare the journal entries necessary to open the records of the partnership. (5 Marks)

b) Assuming in the first year that the partnership makes a profit of $160,000, prepare the journal entries to record the allocation of profit for the year ended 31 December 2019, using Method 1. (3 Marks)