On January 1, 20x1, Kennedy and Carter entered into a partnership to provide engineering consulting services to regional electric utility transmission and distribution companies in Texas and Oklahoma.

When they formed the partnership:

1. Kennedy invested cash of $100,000,
2. Carter invested $50,000 in cash and she invested office equipment with a book value of $40,000 and fair value of $50,000.
3. Each partners beginning capital balance was to equal the partners initial investment.

In accordance with the Articles of Partnership, the partners agreed to the following

1. They would share profits and losses, as follows:

1. Pay Carter $50,000 per year as the managing partner.
2. Allocate 10% interest on the yearly beginning capital balance of each partner and
3. Compensate each partner $25 per hour for their billable hourly consulting work performed.
4. Any remaining profits or losses would be divided between Kennedy and Carter equally.

2. Each partner is permitted but not required to withdraw no more than $6,000 per year from the partnership and such withdrawals will be accounted for as direct reductions of the withdrawing partners capital balance.

For fiscal year-ending 20x1, the partnership's net income was $150,000, which did not include partnership salaries and other allocations discussed above.

Additionally, in 20x1, Kennedy worked 1,400 billable partnership hours, and Carter worked 600 billable hours.

Lastly, during year, Kennedy withdrew $6,000 from the partnership and Carter withdrew $4,500.

Required

1. Prepare the initial journal entry to establish the partnership.
2. For fiscal year-ending 20x1, prepare a schedule showing the allocation of 20x1 net income to each partners capital account.
3. For fiscal year-ending 20x1, prepare a schedule showing the balance in each partners capital account at the end fiscal year 20x1.
4. Assume that on 1/1/20x2, Karen Morgan invests $35,000 in exchange for a 10% interest in the partnership.
   1. Using the bonus method, prepare a journal entry admitting Morgan into the partnership. Any bonus to Morgan is allocated equally between the existing partners.
   2. Prepare a schedule showing the balance of each partners capital account, after admitting Katie Morgan.