Dutcher, OConnor, and Gilchrist open an accounting practice on January 1, 2017 in Des Moines, Iowa to be operated as a partnership. To establish the business, Dutcher contributed a building with a book value of $20,000 and an appraised value of $150,000. The $50,000 loan on the building will be assumed by the partnership. OConnor contribution cash of $75,000 and computer equipment with a book value of $20,000 and an appraised value of $25,000. Gilchrist contributed cash of $85,000 and office furniture with a book value of $20,000 and an appraised value of $15,000. The partnership operates on a calendar year.

The articles of partnership stipulate the following:

• Monthly withdrawals of $1,000 are allowed for each partner.
• Net income is to be allocated as follows:
  • OConnor receives a compensation allowance of $2,500 per month for administrative duties.
  • Interest of 10% is to be allocated on the basis of beginning of year capital balances (ending balance from prior year).
  • Remainder of profit or loss shared in the following ratios:
    • Dutcher 40%
    • OConnor 40%
    • Gilchrist 20%

Net partnership income for 2017 was $100,000. Dutcher took no withdrawals from partnership in 2017, OConnor took withdrawals of $500 per month in 2017, and Gilchrist took withdrawals of $1,000 per month in 2017.

2018

On January 1, 2018, Sprock joins the partnership. Sprock purchased a 30% interest in the partnership by contributing cash of $125,000 to the partnership. The partnership uses the bonus method to record this transaction.

The articles of partnership were amended to reflect the following:

• Monthly withdrawals of $2,000 are allowed for each partner.
• Net income is to be allocated as follows:
  • OConnor receives a compensation allowance of $1,000 per month for administrative duties and Sprock receives a compensation allowance of $2,000 to attract new business.
  • Interest of 10% is to be allocated on the basis of beginning of year capital balances (ending balance from prior year).
  • Remainder of profit or loss shared in the following ratios:
    • Dutcher 25%
    • OConnor 25%
    • Gilchrist 20%
    • Sprock 30%

Net partnership income for 2018 was $200,000. All partners took the allowed withdrawals of $2,000 per month.

2019

On January 1, 2019, Gilchrist withdrew from the partnership and received a cash payment of $150,000. The partnership uses the bonus method to record this transaction.

The articles of partnership were amended to reflect the following:

• Monthly withdrawals of $2,000 are allowed for each partner.
• Net income is to be allocated as follows:
  • OConnor receives a compensation allowance of $2,000 per month for administrative duties and Sprock receives a compensation allowance of $2,000 to attract new business.
  • Interest of 10% is to be allocated on the basis of beginning of year capital balances (ending balance from prior year).
  • Remainder of profit or loss shared in the following ratios:
    • Dutcher 30%
    • OConnor 35%
    • Sprock 35%

Net partnership income for 2019 was $150,000. All partners took the allowed withdrawals of $2,000 per month.

Required:

For each year prepare journal entries as necessary to record formation of the partnership, admission of new partners, withdrawal of existing partners, closing of the income summary and withdrawal accounts. Also prepare a schedule of allocation of net income and a statement of partners capital for each year.