Question
Owen and Choate formed a partnership on January 1, 2017. Owen contributed cash of $50,000; Choate conveyed title to the following properties to the partnership.
Owen and Choate formed a partnership on January 1, 2017. Owen contributed cash of $50,000; Choate
conveyed title to the following properties to the partnership.
Asset
Book value
Fair value
Land............................................................................................................ 15,000
28,000
Buildings and equipment........................................................................ 35,000
36,000
The partners agree to start their partnership with equal capital balances. No goodwill is to be
recognized.
According to the articles of partnership, profits and losses are allocated based on the following formula:
1. Owen will receive compensation in the amount of $1,000 monthly.
2. All remaining profits and losses will be based on a split of 60:40 to Choate and Owen
respectively.
3. Each partner can make an annual cash drawing of $5,000 beginning January 1, 2018.
Net income for 2017 was $15,000.
On January 1, 2018 Hamad is invited to join the partnership. Hamad will pay $54,000 to the partnership
and will receive a 40% interest.
Required:
1. Prepare journal entry to record the contributions of Owen and Choate to the partnership.
2. Prepare journal entry to close the income summary account into the individual partners
capital.
3. Prepare journal entry to record the admission of Hamad to the partnership.
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