Question
On June 7, 2020, Cheng and Morales, two recent graduates of Upper State University, formed a computer consulting firm. Cheng contributed an extensive, up-to-date computer
On June 7, 2020, Cheng and Morales, two recent graduates of Upper State University, formed a computer consulting firm. Cheng contributed an extensive, up-to-date computer installation, valued at $100,000. This equipment had been financed by a bank loan; the partnership assumed the current balance of $25,000. Cheng also invested $5,000 cash. Morales had recently inherited a small office building, valued at $150,000 and encumbered by a mortgage debt of $35,000. Morales transferred both the building and the debt to the partnership. Cheng's extensive computer skills coupled with Morales' sales and customer service skills suggest a profitable future for the firm. They agreed to share profits in the ratio of 40 percent for Cheng and 60 percent for Morales, in part because of Morales' larger investment.
Required
Compute the balance in each partner's capital account on June 7, 2020, and record the partnership formation entry if the:
NOTE: If the additional debit journal entry is not needed, select "No entry" as your answer and leave the Debit/Credit numerical answers blank (zero).
a. Partners do not specify any capital relationship.
DescriptionDebitCreditCashAnswer
Answer
Computer equipmentAnswer
Answer
BuildingAnswer
Answer
Answer
Goodwill
No entry
Answer
Answer
Loan payableAnswer
Answer
Mortgage payableAnswer
Answer
Capital, ChengAnswer
Answer
Capital, MoralesAnswer
Answer
b. Partners agree that each is to have a 50 percent interest in partnership capital, and they specify the bonus approach to recording the formation.
DescriptionDebitCreditCashAnswer
Answer
Computer equipmentAnswer
Answer
BuildingAnswer
Answer
Answer
Goodwill
No entry
Answer
Answer
Loan payableAnswer
Answer
Mortgage payableAnswer
Answer
Capital, ChengAnswer
Answer
Capital, MoralesAnswer
Answer
c. Partners agree that each is to have a 50 percent interest in partnership capital, and they specify the goodwill approach to recording the formation.
DescriptionDebitCreditCashAnswer
Answer
Computer equipmentAnswer
Answer
BuildingAnswer
Answer
Answer
Goodwill
No entry
Answer
Answer
Loan payableAnswer
Answer
Mortgage payableAnswer
Answer
Capital, ChengAnswer
Answer
Capital, MoralesAnswer
Answer
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College Accounting Chapters 1-13
Authors: John Price
14th Edition
007763991X, 9780077639914
