Kimberly Payne and Arionna Maples decide to form a partnership by combining the assets of their separate businesses. Payne contributes the following assets to the partnership: cash, $22,420; accounts receivable with a face amount of $148,390 and an allowance for doubtful accounts of $4,620; merchandise inventory with a cost of $84,200; and equipment with a cost of $146,270 and accumulated depreciation of $45,790.

The partners agree that $5,580 of the accounts receivable are completely worthless and are not to be accepted by the partnership, that $5,260 is a reasonable allowance for the uncollectibility of the remaining accounts, that the merchandise inventory is to be recorded at the current market price of $108,260, and that the equipment is to be valued at $86,600.

On December 1, journalize the partnerships entry to record Paynes investment. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS

Payne and Arionna Maples

General Ledger

	ASSETS
110	Cash
111	Petty Cash
112	Accounts Receivable
113	Allowance for Doubtful Accounts
114	Interest Receivable
115	Notes Receivable
116	Merchandise Inventory
117	Office Supplies
118	Store Supplies
119	Prepaid Insurance
120	Land
123	Equipment
124	Accumulated Depreciation-Equipment
129	Asset Revaluations
133	Patent

	LIABILITIES
210	Accounts Payable
211	Salaries Payable
213	Sales Tax Payable
214	Interest Payable
215	Notes Payable

	EQUITY
310	Kimberly Payne, Capital
311	Kimberly Payne, Drawing
312	Arionna Maples, Capital
313	Arionna Maples, Drawing

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Salaries Expense
521	Advertising Expense
522	Depreciation Expense-Equipment
523	Delivery Expense
524	Repairs Expense
529	Selling Expenses
531	Rent Expense
533	Insurance Expense
534	Office Supplies Expense
535	Store Supplies Expense
536	Credit Card Expense
537	Cash Short and Over
538	Bad Debt Expense
539	Miscellaneous Expense
710	Interest Expense

2.

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $259,200 and $172,800, respectively.

Determine their participation in the year's net income of $384,000 under each of the following independent assumptions:

1. No agreement concerning division of net income.
2. Divided in the ratio of original capital investment.
3. Interest at the rate of 18% allowed on original investments and the remainder divided in the ratio of 2:3.
4. Salary allowances of $68,000 and $94,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 18% on original investments, salary allowances of $68,000 and $94,000, respectively, and the remainder divided equally.

	Hawes	Albright
(a)	$	$
(b)	$	$
(c)	$	$
(d)	$	$
(e)	$	$

3.

1. Dividing LLC Income

   Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $56,000 and $45,000 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:2. The two members withdrew amounts equal to their salary allowances. Revenues were $668,000 and expenses were $520,000, for a net income of $148,000.

   a. Determine the division of $148,000 net income for the year.

   Schedule of Division of Net Income
   	Farley	Clark	Total
   Salary allowance	$	$	$
   Remaining income
   Net income	$	$	$

   b. Provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. For a compound transaction, if an amount box does not require an entry, leave it blank.

   (1)
   (2)

   c. If the net income were less than the sum of the salary allowances, how would income be divided between the two members of the LLC?

   If the net income of the LLC were less than the sum of the salary allowances, members would still be credited with their salary allowances. The difference between the net income and total salary allowances would be allocated to each partner as , according to the ratio.

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