On June 1, 2020, Jill Bow and Aisha Adams formed a partnership to open a gluten-free commercial bakery, contributing

Question

On June 1, 2020, Jill Bow and Aisha Adams formed a partnership to open a gluten-free commercial bakery, contributing $290,000 cash and $380,000 of equipment, respectively. The partnership also assumed responsibility for a $50,000 note payable associated with the equipment. The partners agreed to share profits as follows: Bow is to receive an annual salary allowance of $160,000, both are to receive an annual interest allowance of 10% of their original capital investments, and any remaining profit or loss is to be shared 40/60 (to Bow and Adams, respectively). On November 20, 2020, Adams withdrew cash of $110,000. At year-end, May 31, 2021, the Income Summary account had a credit balance of $480,000. On June 1, 2021, Peter Williams invested $130,000 and was admitted to the partnership for a 20% interest in equity. Required: 1. Prepare journal entries for the following dates. a. June 1, 2020 b. November 20, 2020 c. May 31, 2021 d. June 1, 2021 2. Calculate the balance in each partner's

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Transaction Date General Journal Debit Credit a 1-Jun-20 Cash 290000 Equipment 380000 J. Bow, Capital 290000 A. Adams, Capital 330000 Notes Payable 50000 (To record formation of partnership) b 20-Nov-20 A. Adams, Withdrawals 110000 Cash 110000 (To record withdrawal by partner) c 31-May-21 Income summary 480000 J. Bow, Capital 292200 A. Adams, Capital 187800 (To record closing of net income to capital) d 1-Jun-21 Cash 130000 J. Bow, Capital (224000-130000)*40% 37600 A. Adams, Capital (224000-130000)*60% 56400 P. Williams, Capital (1120000*20%) 224000 (To record the admission of new partner) J. Bow, Capital (290000+292200-37,600) 544600 A. Adams, Capital (330000-110000+187800-56400) 351400 P. Williams, Capital 224000 Workings: J. Bow A. Adams Total Net income 480000 Salary allowance: Bow 160000 Interest allowances: Bow (10% on $290,000) 29000 Adams (10% on $330,000) 33000 Total salaries and interest allocation 189000 33000 222000 Balance of income to be allocated 258000 Balance allocated 40/60: Bow (40% * $258,000) 103200 Adams (60% * $258,000) 154800 Total allocated 40/60 -258000 Balance of income 0 Shares of the partners 292200 187800 480000 Total equity prior to admission of new partner = (290000+292200)+(330000-110000+187800) = $990,000 Total equity after admission of new partner = $990,000+130000 = $1,120,000

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On June 1, 2020, Jill Bow and Aisha Adams formed a partnership to open a gluten-free commercial bakery, contributing $290,000 cash and $380,000 of equipment, respectively

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Archived Solution

Transaction	Date	General Journal	Debit	Credit
a	1-Jun-20	Cash	290000
		Equipment	380000
		J. Bow, Capital		290000
		A. Adams, Capital		330000
		Notes Payable		50000
		(To record formation of partnership)

b	20-Nov-20	A. Adams, Withdrawals	110000
		Cash		110000
		(To record withdrawal by partner)

c	31-May-21	Income summary	480000
		J. Bow, Capital		292200
		A. Adams, Capital		187800
		(To record closing of net income to capital)

d	1-Jun-21	Cash	130000
		J. Bow, Capital (224000-130000)*40%	37600
		A. Adams, Capital (224000-130000)*60%	56400
		P. Williams, Capital (1120000*20%)		224000
		(To record the admission of new partner)

J. Bow, Capital (290000+292200-37,600)	544600
A. Adams, Capital (330000-110000+187800-56400)	351400
P. Williams, Capital	224000

	J. Bow	A. Adams	Total
Net income			480000
Salary allowance:
Bow	160000
Interest allowances:
Bow (10% on $290,000)	29000
Adams (10% on $330,000)		33000
Total salaries and interest allocation	189000	33000	222000
Balance of income to be allocated			258000
Balance allocated 40/60:
Bow (40% * $258,000)	103200
Adams (60% * $258,000)		154800
Total allocated 40/60			-258000
Balance of income			0
Shares of the partners	292200	187800	480000