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On June 1, 2020, Jill Bow and Aoha Adams formed a partnership to open a gluten-free commercial bakery, contributing $204,000 cash and $388,000 of equipment, respectively_ The partnership also assumed responsibility for a $54,000 note payable associated with the equipment The partners agreed to share profits as follows, Bow is to receive an annual salary allowance of $154,000, both are to receive an annual interest allowance of 102 of their original cam
On June 1, 2020, Jill Bow and Aoha Adams formed a partnership to open a gluten-free commercial bakery, contributing $204,000 cash and $388,000 of equipment, respectively_ The partnership also assumed responsibility for a $54,000 note payable associated with the equipment The partners agreed to share profits as follows, Bow is to receive an annual salary allowance of $154,000, both are to receive an annual interest allowance of 102 of their original cam. investments, a. any remaining pro, or loss is to be shared 40/60 (to Bow and Adams, respectively) On November 20, 2020, Adams withdrew cash of $114,000 At year-end, May 31, 2021, the Income Summary account had a creckt balance of $520,00. On June 2021, Peter Williams invested $134,000 antl was admitted to the partnership for a 20. interest in equity_
Required: 1. Prepare Journal entries for the following dates_
a. June 1, 2020
Journal entry worksheet
Record the formation of partnership.
2 Calculate the balance in each partner, capital account immediately after the June 1, 2021, entry
Bay, capital Halm Adamscapitil Williams, capital
Expert Solution
| Transaction | Date | General Journal | Debit | Credit |
| a | 1-Jun-20 | Cash | 294000 | |
| Equipment | 388000 | |||
| J. Bow, Capital | 294000 | |||
| A. Adams, Capital | 334000 | |||
| Notes Payable | 54000 | |||
| (To record formation of partnership) | ||||
| b | 20-Nov-20 | A. Adams, Withdrawals | 114000 | |
| Cash | 114000 | |||
| (To record withdrawal by partner) | ||||
| c | 31-May-21 | Income summary | 520000 | |
| J. Bow, Capital | 310680 | |||
| A. Adams, Capital | 209320 | |||
| (To record closing of net income to capital) | ||||
| d | 1-Jun-21 | Cash | 134000 | |
| J. Bow, Capital (233600-134000)*40% | 39840 | |||
| A. Adams, Capital (233600-134000)*60% | 59760 | |||
| P. Williams, Capital (1168000*20%) | 233600 | |||
| (To record the admission of new partner) |
| J. Bow, Capital (294000+310680-39840) | $564,840 |
| A. Adams, Capital (334000-114000+209320-59760) | $369,560 |
| P. Williams, Capital | $233,600 |
Workings:
| J. Bow | A. Adams | Total | |
| Net income | 520000 | ||
| Salary allowance: | |||
| Bow | 164000 | ||
| Interest allowances: | |||
| Bow (10% on $294,000) | 29400 | ||
| Adams (10% on $334,000) | 33400 | ||
| Total salaries and interest allocation | 193400 | 33400 | 226800 |
| Balance of income to be allocated | 293200 | ||
| Balance allocated 40/60: | |||
| Bow (40% * $293,200) | 117280 | ||
| Adams (60% * $293,200) | 175920 | ||
| Total allocated 40/60 | -293200 | ||
| Balance of income | 0 | ||
| Shares of the partners | 310680 | 209320 | 520000 |
Total equity prior to admission of new partner = (294000+310680)+(334000-114000+209320) = $1,034,000
Total equity after admission of new partner = $1,034,000+134000 = $1,168,000
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