As Con's business is continuing to expand he is considering on getting some help in running the business. One of Con's option is to take on some partners which would not only give him some more help in managing the business but also add some capital to assist with the expansion plans.

 

Con has two cousins, Dee Struckshen and Anne Eyealashon who are keen to make a partnership. Dee has $40,000 in savings that she is willing to contribute for a 25% share while Anne has $10,000 cash and a $30,000 vehicle they will contribute also for a 25% share. Con has been able to quickly do up a balance sheet on the computer software he uses and it shows his current capital balance as being $110,000.

 

As part of the discussions on becoming partners, Dee, Anne and Con have agreed to share any profits or losses equally amongst the three of them. To compensate Con for his larger capital contribution he will receive an interest payment of 10% of his capital balance (as long as it remains above $100,000) as well as salary of $20,000.

 

Con is extremely appreciative of the work you have done with him and was mentioning how great you are to Bill when he was buying the group of assets from him. Bill has contacted you to help him close down his business. Bill's business Create or Refresh was a partnership he had been running with his good friend René Vate. Bill and René have provided you with the following information about the dissolution of their business.

 

 

Assets

Cash                                               3,500

Inventory                                       7,500

Demolition Tools                         21,000

Equipment Trailer                          8,000

Motor Vehicles                            49,000

Land                                           140,000

Goodwill                                      10,000

 

 

 

 

239,000

 

Liabilities

Accounts Payable                          6,950

Accrued Expenses                          2,800

Loans                                           93,000

 

                                                   102,750

Equity

Bill                                                66,250

René                                             70,000

 

                                                   136,250

 

239,000

 

 

In addition to the $90,000 cash Con paid to Bill, René was able sell off the remaining assets for $134,500 cash.  Bill and René have always shared any profits and losses equally (50% each).

 

Question:

Con has decided to go ahead and form a partnership with Dee and Anne but is curious how the profit sharing will actually work. Con, Dee and Anne are predicting that a successful first year of business should return a profit of $61,000. Using the relevant information from page 8 of the Information Booklet REQUIRED: A) Show the journal entry required to admit Dee and Anne as partners (Show any relevant calculations)