Question
Sharon and Rebecca agreed to combine their businesses and formed a partnership on 1 July 2017. The fair value and the carrying amount of the
Sharon and Rebecca agreed to combine their businesses and formed a partnership on 1 July 2017. The fair value and the carrying amount of the assets contributed by each partner, and the liabilities assumed by the partnership are shown below:
The partners were entitled to 5 per cent interest on the initial capital. Rebecca ran the partnership and received a salary of $70,000. The profit for the year ended 30 June 2018 was $200,000 before providing for interest and salary. Sharon and Rebecca agreed to share the residual on a 60:40 basis respectively. Assume that they use the fixed capital accounts method (Method 2).
Required: Prepare the required journal entries to record all the transactions related to establishing the partnership and allocating the profit. Narrations are not required. Show supporting calculations
sharon Rebrcca
Carrying amount | Fair value | Carrying amount | Fair value | |
Cash at bank | 16200 | 16200 | 15800 | 15800 |
Accounts receivable | 22800 | 22800 | 21400 | 21400 |
inventory | 52000 | 78000 | 125000 | 72000 |
Equipment | 112000 | 75000 | 125000 | 72000 |
Accumulated depreciation | (48600) | - | (46500) | - |
Accounts payable | 13400 | 13400 | 12800 | 12800 |
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