A and B form the AB partnership. According to the agreement, A contributed $40,0

Question

A and B form the AB partnership. According to the agreement, A contributed $40,000 in cash while B contributed $60,000. Make the journal entry to form the partnership under the following assumptions: The agreement was silent about allocating capital balances The agreement specified that capital balances will be allocated equally and the bonus method will be used The agreement specified that capital balances will be allocated equally and the goodwill method will be used Using the information from #la above, the partners in the AB partnership agreed that profits and losses will be shared as follows Salary A $65,000 B $35,000 Interest Partners get 10% interest on beginning capital balance Bonus: Partner A gets a bonus of 15% of net income generated Remaining profit or loss shared equally Assume that after the first year of operation, the AB partnership generated: Net income $150,000 Net income $70,000 Net loss ($75,000) For each of the income/loss amounts above, determine the partners share of the income or los Prepare the end of year closing entries Determine the ending capital balances for each partner

Explanation / Answer

Answer 1 Journal entry in case (a) Account Debit Credit Cash A/c 100000 A' Capital Account 40000 B' Capital Account 60000 Journal entry in case (b) Account Debit Credit Cash A/c 100000 A' Capital Account 50000 B' Capital Account 50000 Journal entry in case (c) Account Debit Credit Cash A/c 100000 A' Capital Account 50000 B' Capital Account 50000 Answer 2 (a) Net Income 150000 70000        (75,000) Salary 'A' 65000 65000 65000 Salary 'B' 35000 35000 35000 Interest Interest 'A' 4000 4000 4000 Interest 'B' 6000 6000 6000 Bonus Bonus 'A' 22500 10500 0 Bonus 'B' 0 0 0 Net Proit & Loss after adjustments 17500       (50,500)       (185,000) Share of 'A' 8750       (25,250)        (92,500) Share of 'B' 8750       (25,250)        (92,500) Answer 2 (b) Journal Entry in all cases Account Debit Credit Salaries Entries Salary A/c 100000 Capital 'A' 65000 Capital 'B' 35000 Interest Enteries Interest A/c 10000 Capital 'A' 4000 Capital 'B' 6000 Bonus Enteries Journal Entry in I case Account Debit Credit Bonus A/c 22500 Capital 'A' 22500 Journal Entry in II case Account Debit Credit Bonus A/c 10500 Capital 'A' 10500 Profit & Loss entries Journal Entry in I case Account Debit Credit Profit & Loss A/c 17500 Capital 'A' 8500 Capital 'B' 8500 Journal Entry in II case Account Debit Credit Capital 'A' 25250 Capital 'B' 25250 Profit & Loss A/c 50500 Journal Entry in III case Account Debit Credit Capital 'A' 92500 Capital 'B' 92500 Profit & Loss A/c 185000 Answer 2 c Ending Capital Balances in case I Capital 'A' Capital 'B' Capital Introduce 40000 60000 Salary 65000 35000 Interest 4000 6000 Bonus 22500 0 Share In Profit/loss 8500 8500 Ending Capital Balances in case I 140000 109500 Ending Capital Balances in case II Capital 'A' Capital 'B' Capital Introduce 40000 60000 Salary 65000 35000 Interest 4000 6000 Bonus 10500 0 Share In Profit/loss       (25,250)       (25,250) Ending Capital Balances in case II 94250 75750 Ending Capital Balances in case III Capital 'A' Capital 'B' Capital Introduce 40000 60000 Salary 65000 35000 Interest 4000 6000 Bonus 0 0 Share In Profit/loss       (92,500)       (92,500) Ending Capital Balances in case III 16500 8500

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