In the early part of 2018, the partners of Hugh, Jacobs, and Thomas sought assis
ID: 2568430 • Letter: I
Question
In the early part of 2018, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business in 2017 but had never used an accountant’s services.
Hugh and Jacobs began the partnership by contributing $105,000 and $55,000 in cash, respectively. Hugh was to work occasionally at the business, and Jacobs was to be employed full-time. They decided that year-end profits and losses should be assigned as follows:
Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the period.
A compensation allowance of $7,000 was to go to Hugh with a $19,000 amount assigned to Jacobs.
Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively.
In 2017, revenues totaled $130,000, and expenses were $96,000 (not including the partners’ compensation allowance). Hugh withdrew cash of $6,000 during the year, and Jacobs took out $11,000. In addition, the business paid $9,000 for repairs made to Hugh’s home and charged it to repair expense.
On January 1, 2018, the partnership sold a 15 percent interest to Thomas for $58,000 cash. This money was contributed to the business with the bonus method used for accounting purposes.
What journal entries should the partnership have recorded on December 31, 2017?
What journal entry should the partnership have recorded on January 1, 2018?
Explanation / Answer
1) Journal Entries on December 31.
Working Note :-
2)
Total Equity of The Partnership after T's Admission.
Excess Cash Brougth in by T :-
Excess Cash Distribute to H and J in 4 : 6 Ratio :-
H's = $22750 * 4/10 = $9100
J's = $22750 * 6/10 = $13650
Journal Entry on Jan. 1 ,2018 :-
Date Particulars Debit ($) Credit ($) Jan 1 Cash 9000 To Repair Expense 9000 Dec 31 H's Capital ($6000 + $9000) 15000 To H's Drawing 15000 Dec 31 J's Capital 11000 To J's Drawings 11000 Dec 31 Revenues 130000 To Expenses ($96000 - $9000) 87000 To Income Summary ($130000 - $87000) 43000 Dec 31 Income Summary 43000 To H's Capital (Working Note) 17900 To J's Capital (Working Note) 25100