Henry, John and Kate decide to form a partnership, as from 1 January 2019. The agreement set out the following basic arrangements:

Sarah to contribute $20000 in cash, computers valued at $15 000 with a bank loan of 6 000, and debtors of $2 000.

William to contribute computers valued at $12 500 and to act as managing partner at a salary of $20 000 per year.

Tom to contribute computers valued at $12 750, and office furniture valued at $10 000 on Toms accounting record. The fair value of the office furniture is $1 500 less than Toms record.

Interest for the period is to be allowed partners at the rate of 6% p.a. on their original capital contributions but is not charged on drawings.

Residual profits or losses to be shared among Sarah, William and Tom in the proportion of 2:1:2 respectively.

Ignore GST

Required

A. Prepare the journal entries necessary to open the records of the partnership.

B. Assuming in the first year that the partnership makes a profit of $85 000, prepare the journal entries to record the allocation of profit for the year ended 31 December 2019, using Method 2.