Tom and Jerry decide to enter into a partnership agreement from 1 July 2021. Assets and liabilities brought into the partnership are shown below. Tom
Tom and Jerry decide to enter into a partnership agreement from 1 July 2021. Assets and liabilities brought into the partnership are shown below.
Tom Jerry
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash | 19,200 | 19,200 | 5,000 | 5,000 |
Inventory | 4,000 | 3,800 | 3,800 | 3,800 |
Accounts Receivable | 3,000 | 2,500 | 1,500 | 1,500 |
Equipment | 65,000 | 55,000 | 30,000 | 25,000 |
Accum. Depreciation | 5,500 | 5,000 | ||
Accounts payable | 800 | 800 | ||
Bank loan | 50,000 | 50,000 |
Because of Jerry’s exceptional talent, it is agreed that his capital amount will be credited to $50,000 in total.
During the year ended 30/6/2022 the following details apply:
• The partners use method 1 in their accounting
• Tom will receive a salary of $50,000 p.a. and Jerry a salary of $28,000 p.a.
• Partners will receive 8% p.a. interest on their opening capital balances
• Partners will be charged 9% p.a. on any drawings
• Tom makes drawings of $20,000 on 1 January 2022
• Jerry makes drawings of $15,000 on 1 March 2022
• Residual profits will be distributed to Tom and Jerry on the ratio of 1:2.
• Profit for the year was $76,000
• Financial year ends 30 June 2022
Required
Prepare the general journal entries upon the formation of the partnership.
Prepare a table showing the calculation of the distribution of profit to the partners as of 30 June 2022.
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