Question
In the early part of 2015, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business
In the early part of 2015, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business in 2014 but had never used an accountant's services.
Hugh and Jacobs began the partnership by contributing $125,000 and $75,000 in cash, respectively. Hugh was to work occasionally at the business, and Jacobs was to be employed full time. They decided that year-end profits and losses should be assigned as follows: |
Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the period. | |
A compensation allowance of $7,000 was to go to Hugh with a $21,000 amount assigned to Jacobs. | |
Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively. |
In 2014, revenues totaled $150,000, and expenses were $131,000 (not including the compensation allowance assigned to the partners). Hugh withdrew cash of $7,000 during the year, and Jacobs took out $12,000. In addition, the business paid $8,000 for repairs made to Hughs home and charged it to repair expense. |
On January 1, 2015, the partnership sold a 15 percent interest to Thomas for $40,000 cash. This money was contributed to the business with the bonus method used for accounting purposes. |
c. | What journal entries should the partnership have recorded on December 31, 2014? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
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