Monville and tucker from partnership on July 1, 2013. Monville contributes cash

Question

Monville and tucker from partnership on July 1, 2013. Monville contributes cash of $80,000 tucker conveys title to a building and equipment with a total book value of $80,000 and total fair market value of $ 110,000 The partners agree to start their partnership with equal capital balances no goodwill is to be recognized According to the articles of partnership written by the partners, profits and losses are allocated following formula: Monville receives a compensation allowance of $1,000 per month All remaining profits and losses are split 60:40 to Tucker and Monville, respectively Each partner can make annual cash draws of $5,000 beginning in the first full calendar year of the partnership During 2013, the partnership earned $15,000 of net income. On January 1, 2014, Miller was invited to join the partnership. Based on her business relationship and client list, she is given a 40% interest for $54,000 of cash, paid directly to the partnership. The bonus approach is used to record the investment. The articles of partnership are amended to give Miller $2,000 compensation allowance per month and an annual cash draw of $10,000. The new partner will receive credit for the intangibles conveyed along with the cash for the partnership interest (i.e., the new partner's capital account will be credited). Remaining profits are now allocated 48:12:40 to Tucker, Monville and Miller respectively. The partnership earned $40,000 in 2014 and all draws are taken by the partners during 2014. The partnership's business continues to grow. As a result, on January 1, 2015, Taylor, an employee, is admitted to the partnership. Each partner transfers 10 percent to Taylor, who makes the following payments to the partners: Tucker $6,760 Monville $9,100 Miller $10,140 the articles of partnership are amended to allow for the entrance Taylor it entitles her to a compensation allowance of $800 per month and an annual draw of $4,000 profits and losses are allocated 41:13:36:10 to tucker, monville, miller and Taylor respectively for 2015 the partnership earned %56,000 and all draws are taken by the partners prepare an income allocation and a capital account balance schedule for 2013,2014 ad 2015 include any additional computations are explanations that support your schedules.

Explanation / Answer

It is a partnership problem. On 1.7.2013 they stared business. Monovillee itroduced $80,000 cash. Tucker has introduced Building of book value 80,000 and fair market value of $110,000. As per rule it should be recorded at fair value. But for tax purpose it will be taken at 80,000. So total itroduction is 80,000+110,00=190,000. As per Partnership agreement, both partner will start with equal capital. Thus 50% of 190,0000 will be starting capital of each partener. Thus Journal entry will be-

Capital schedule of 2013 is:

Note: Profit of the year is nil. So no compensation received by Monovillee.

        No question of withdrawal as it is a incomplete calender year starting from 1st July 2013.

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Now consider year 2014. On 1st January, Miller was admitted. He bought $54,000 cash plus some intangibles (goodwill) into the business. His share will be 40%. Under Bonus method calculation of his capital is:

This goodwill will be debited in old Partners account in old profit sharing ratio. So Monovillee will bear 60% of $43,600 i.e. $26,160 and rest $17,440 by Miller

Thus Journals are:

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Next consider profit distribution schedule of year 2014. It is shown below:

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After such distribution capital schedule will be as follows for year ended on December 2014:

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Finally consider position in year 2015. On January 1, Taylor was admitted. He paid Tucker $6,760, Monovillee $9,100 and Miller $10,140. Thus Journal is:

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In 2015 profit earned is 56,000. It is distributed in the following manner:

Profit distribution schedule 2015:

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So year end caital schedule is;

Debit Credit Cash.........................Dr $80,000 Buildig.......................Dr $110,000    Moovillee Capital........ $95,000    Tucker Capital............. $95,000

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