William and Christie form a partnership by investing $60,000 and $40,000 respectively. Their partnership agreement stipulates that William will receive an annual salary allowance of $6,000, and both partners will receive an interest allowance of 10% on their capital investment. Any profit remaining is to be allocated 60% to William, and 40% to Christie. Profit for their first year of operations is $40,000. Calculate the partners’ share of Net Income and Prepare the entry to close Income Summary. Show all calculations for full marks.

Question 2 (6 Marks)

Lewis and Watson formed a partnership. Lewis contributed $15,000 cash and accounts receivable worth $13,000. Watson's investment included cash, $8,000; inventory, $9,000; and supplies, $1,000. (All values are current fair market values). Prepare the journal entry to record the formation of the partnership.

Question 3 (6 Marks)

Zilky and Justin formed a partnership on December 31, 2013. Zilky contributed $50,000 cash and accounts receivable with a fair market value of $10,000. Justin's investment consisted of: cash, $5,000; inventory, $34,000; and supplies, $1,000-all at fair market values. Profit for 2014 and 2015 was $50,000 and $65,000, respectively.

Calculate the allocation of profit for 2014 and 2015, assuming profits are divided as follows:

(A) The partners have no agreement.
(B) Based on a 1:3 ratio.
(C) Based on the ratio of the partners' original investments.

Question 4 (10 Marks)

The balance sheet of the partnership of Ray, John and Tracy is presented below. They

share net income and losses equally.

RCT Partnership

Balance Sheet

Cash $ 5,000 Accounts payable $10,000

Inventory 80,000 Ray, Capital 20,000

John, Capital 40,000

_ Tracy, Capital 15,000

Total $ 85,000 Total $85,000

Required:

Prepare all necessary journal entries for each of the following independent situations.

1. R, J and T agree to admit W. W purchases one-half of the equity interest of John and pays John $20,000 cash personally.

2. R, J and T agree to admit W to a one-half equity interest in the partnership if she invests $45,000 cash into the partnership. Refer to the original data.

3. John wishes to retire. The partnership will pay John $30,000 for his equity.

John really wants to retire. Refer to the original data.