Sarah, William and Tom are independent website developers who had been trading in active opposition to one another for some years. They decide to form a partnership, WWW Web Developers, as from 1 January 2019. The agreement set out the following basic arrangements:

Sarah to contribute $10 000 in cash, computers valued at $18 000 with a bank loan of 5 000, and debtors of $2 000.

William to contribute computers valued at $10 500 and to act as managing partner at a salary of $15 000 per year.

Tom to contribute computers valued at $18 750, and office furniture valued at $10 000 on Toms accounting record. The fair value of the office furniture is $1 500 less than Toms record.

Interest for the period is to be allowed partners at the rate of 6% p.a. on their original capital contributions but is not charged on drawings.

Residual profits or losses to be shared among Sarah, William and Tom in the proportion of 2:1:2 respectively.

Ignore GST

Required

A. Prepare the journal entries necessary to open the records of the partnership. (5 Marks)

B. Assuming in the first year that the partnership makes a profit of $85 000, prepare the journal entries to record the allocation of profit for the year ended 31 December 2019, using Method 2. (3 Marks).

(Both account names and figures should be correct in order to award marks. Type your response directly into the template in the text box below. )