Question

Angela Moss and Autumn Barber organize a partnership on January 1. Moss’s initial net investment is $75,000, consisting of cash ($17,500), equipment ($82,500), and a note payable reflecting a bank loan for the new business ($25,000). Barber’s initial investment is cash of $31,250. These amounts are the values agreed on by both partners. Prepare journal entries to record (1) Moss’s investment and (2) Barber’s investment.

Answer 1

Answer:

Journal Entry (1):

D – Cash………………………………………………... $17,500

D – Equipment (Long-term asset)……………………… $82,500

C- Share Capital (Owner’s Equity)…………………….. $75,000

C – Bank Loan (Liability)……………………………… $25,000

Journal Entry (2):

D – Cash………………………………………………... $31,250

C – Share Capital (Owner’s Equity)…………………… $31,250

Explanation:

Firstly, the general rule is: all application of resources must be registred as debit, while all origin of resources must be registred as credit.

Journal Entry (1) is explained by the application of resources in cash and equipament. Besides that, the origin of these resources are part from the Owner of the company and part from a bank loan.

Journal Entry (2) is explained by the application of resoursces in cash, which origin is from the Owner of the company.