Tim, Lucas and Cathy started a partnership online retailing business as from 1 January 2022. The agreement set out the following basic arrangements:

·       Tim to contribute $12 000 in cash and inventory valued at $8 000. He also contributed computers valued at $10 000 on his record. The fair value of these computers was $2 000 higher than Tim's booking record on 1 January 2022.

·       Lucas to contribute $26 000 in cash and office furniture, which originally cost $35 500. Based on Lucas' accounting record, the accumulated depreciation of office furniture showed $15 000. The bank loan associated with office furniture is $10 000. Lucas also acts as managing partner at a salary of $20 000 per year.  

·       Cathy to contribute inventory valued at $24 750.

·       Interest to be allowed at 10% p. a. on the capital contribution by the partners. Residual profits or losses to be shared equally among three partners.

Ignore GST

 

Required

1)    Prepare the journal entries necessary to open the records of the partnership.

2)    Assuming that the partnership makes a profit of $95 000 for the year ended 30 June 2022, prepare the journal entries to record the allocation of profit. Retained Earnings accounts are used for profit distribution.