Question 5 (15 marks)

Part A

On 1 October 2020 James Achmed and Emilia Janet decided to form a partnership, J & E Contractors, by combining the net assets of their separate businesses. James contributed the following net assets to thepartnership:

	Bookvalue	Fairvalue
Cash	19,000	19,000
AccountsReceivable	29,000	28,800
Equipment	137,000	96,000
Accounts Payable	26,000	26,000

Emilia contributed a building worth $421,000, land worth $351,000 and motor vehicles with a book value of$86,000 and a fair value of $61,000. The partnership also agreed to take over the Emilias businessmortgage of $651,000.

Required:

Prepare the journal entries necessary to record the initial investments of J & E Contractors to thepartnership. Ignore GST. (3 marks)

Part B

In addition to the information provided in Part A, the partnership agreement contains thefollowing provisions:

Annual partner salaries are paid on the basis of $86,000 to James and

$81,000 to Emilia.

Interest on opening capital balances, drawings and advances are charged at 5% per annum.

Residual profits are divided proportionately on the basis of the partners initial capital contribution.

Additional information:

On 1 January 2022, James advanced $21,000 to the partnership

Both partners withdrew capital in anticipation of profits:

i) James (1 March 2022) $8,700

ii) Emilia (30 April 2022) $14,000

Net Profit on 30 June 2022 amounted 176,000

Required:

Prepare a schedule showing the distribution of profit to each partner (round to the nearestdollar). (6 marks)

Prepare the Equity section of the Balance Sheet using fixed capital accounts.

(3 marks)

James and Emilia formed a partnership to seek benefits of their expertise and business experience. Briefly explain if it is possible for them to lose a greater amount than the amount ofinvestment in the partnership and how this may be possible. (3 marks)