Tyler Gilligan and Matt Melnyk, two college friends, decided to set up a snow removal business called Ty & Matt Snow Removal Services. At the inception of the partnership, Tyler invested $4,000 cash and Matt invested $11,000 cash. Once formed, the partnership purchased equipment and a vehicle. Tyler estimates that the equipment purchased for $2,000 and the vehicle purchased for $10,000 have five-year useful lives, with no residual value. He used the straight-line method to calculate depreciation expense. At the end of the first year of business, Tyler, who was studying accounting, provided the following information:

Additional information:
1. Salaries expense is $20,000 and $10,000 cash that was paid to Tyler and Matt, respectively, during the year.
2. All revenues were collected in cash.
3. All supplies were paid for in cash. At the end of the year, there were no supplies on hand.
4. There is $17,000 in the bank account at December 31, 2017.
Instructions
(a) Prepare journal entries to correct the errors, if any, on the income statement.
(b) Calculate the correct profit and the amount to be allocated to each partner.
(c) Prepare a statement of partners' equity for the year ended December 31, 2017.
(d) Prepare a balance sheet at December 31, 2017.
TAKING IT FURTHER
Tyler is not happy about how the profit was allocated. He says that he works twice as hard as Matt. Matt argues that he made a larger contribution to start the partnership. What should Tyler and Matt do to deal with their concerns?

Transcribed Image Text:

TY & MATT SNOW REMOVAL SERVICES Income Statement Year Ended December 31, 2017 Service revenue Expenses $50,000 Supplies expense Depreciation expense Salaries expense $ 6,000 2,400 30,00038,400 $ i 1.600 Profit