on march 1, eckert and kelley formed a partnership. eckert contributed $96,000 cash, and kelley contributed…

on march 1, eckert and kelley formed a partnership. eckert contributed $96,000 cash, and kelley contributed land valued at $76,800 and a building valued at $106,800. the partnership also took kelleys $86,000 long - term note payable associated with the land and building. the partners agreed to share income as follows: eckert gets an annual salary allowance of $30,000, both get an annual interest allowance of 8% of their initial capital investment, and any remaining income or loss is shared equally. on october 20, eckert withdrew $30,000 cash and kelley withdrew $23,000 cash. first year income was $81,000. required: 1a. & 1b. prepare journal entries to record the partners initial capital investments and their subsequent cash withdrawals. 1c. determine the partners shares of income, and then prepare journal entries to close income summary and the partners withdrawals accounts. 2. determine the balances of the partners capital accounts as of december 31.

on march 1, eckert and kelley formed a partnership. eckert contributed $96,000 cash, and kelley contributed land valued at $76,800 and a building valued at $106,800. the partnership also took kelleys $86,000 long - term note payable associated with the land and building. the partners agreed to share income as follows: eckert gets an annual salary allowance of $30,000, both get an annual interest allowance of 8% of their initial capital investment, and any remaining income or loss is shared equally. on october 20, eckert withdrew $30,000 cash and kelley withdrew $23,000 cash. first year income was $81,000. required: 1a. & 1b. prepare journal entries to record the partners initial capital investments and their subsequent cash withdrawals. 1c. determine the partners shares of income, and then prepare journal entries to close income summary and the partners withdrawals accounts. 2. determine the balances of the partners capital accounts as of december 31.

Answer

Explanation:

Step1: Record initial capital investments

Eckert contributed cash of $96,000 and a building worth $106,800. Kelley contributed land worth $76,800 and the partnership assumed a $86,000 note - payable. Debit: Cash $96,000 Debit: Building $106,800 Debit: Land $76,800 Credit: Notes Payable $86,000 Credit: Eckert, Capital ($96,000 + $106,800) = $202,800 Credit: Kelley, Capital ($76,800 - $86,000) = -$9,200 (but in practice, we usually consider the net value of contribution, so Kelley's capital is $76,800 and we don't record a negative - value like this in a simple sense. The correct entry for Kelley's capital is $76,800)

Step2: Record cash withdrawals

Eckert withdrew $30,000 and Kelley withdrew $23,000. Debit: Eckert, Drawings $30,000 Credit: Cash $30,000 Debit: Kelley, Drawings $23,000 Credit: Cash $23,000

Step3: Calculate income - sharing

Eckert's interest allowance = ($96,000 + $106,800)×0.08=$16,224 Kelley's interest allowance = $76,800×0.08 = $6,144 Eckert's salary allowance = $30,000 Total allowances = $16,224 + $6,144+ $30,000=$52,368 Remaining income = $81,000 - $52,368 = $28,632 Each partner's share of remaining income = $28,632÷2=$14,316 Eckert's total share of income = $16,224 + $30,000+ $14,316 = $60,540 Kelley's total share of income = $6,144+ $14,316 = $20,460

Debit: Income Summary $81,000 Credit: Eckert, Capital $60,540 Credit: Kelley, Capital $20,460

Debit: Eckert, Capital $30,000 Credit: Eckert, Drawings $30,000 Debit: Kelley, Capital $23,000 Credit: Kelley, Drawings $23,000

Step4: Calculate ending capital balances

Eckert's ending capital = Initial capital+Share of income - Drawings = $202,800+$60,540 - $30,000 = $233,340 Kelley's ending capital = Initial capital+Share of income - Drawings = $76,800+$20,460 - $23,000 = $74,260

Answer:

1a and 1b: Initial investments: Debit: Cash $96,000 Debit: Building $106,800 Debit: Land $76,800 Credit: Notes Payable $86,000 Credit: Eckert, Capital $202,800 Credit: Kelley, Capital $76,800 Withdrawals: Debit: Eckert, Drawings $30,000 Credit: Cash $30,000 Debit: Kelley, Drawings $23,000 Credit: Cash $23,000 1c: Income - sharing: Debit: Income Summary $81,000 Credit: Eckert, Capital $60,540 Credit: Kelley, Capital $20,460 Closing withdrawals: Debit: Eckert, Capital $30,000 Credit: Eckert, Drawings $30,000 Debit: Kelley, Capital $23,000 Credit: Kelley, Drawings $23,000 2: Eckert, Capital balance = $233,340 Kelley, Capital balance = $74,260