Question

On March 1, 2017, Eckert and Kelley formed a partnership. Eckert contributed $82,500 cash and Kelley contributed land valued at $60,000 and a building valued at $100,000. The partnership also assumed responsibility for Kelley’s $92,500 long-term note payable associated with the land and building. The partners agreed to share income as follows: Eckert is to receive an annual salary allowance of $25,000, both are to receive an annual interest allowance of 10% of their beginning-year capital investment, and any remaining income or loss is to be shared equally. On October 20, 2017, Eckert withdrew $34,000 cash and Kelley withdrew $20,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at December 31, 2017, the Income Summary account had a credit balance of $90,000.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, 2017.

Answer 1

Answer:

Eckert and Kelley Partnership

1 Journal Entries:

Debit Cash $82,500

Credit Eckert, Capital $82,500

To record the contribution made by the partner.

Debit Land $60,000

Debit Building $100,000

Credit Long-term note payable $92,500

Credit Kelley, Capital $67,500

To record the contribution made by the partner.

Debit Income Summary $90,000

Credit Eckert, Capital $58,250

Credit Kelley, Capital $31,750

To record the sharing of net income by partners.

Debit Eckert, Capital $34,000

Credit Cash $34,000

To close cash withdrawal by Eckert to the capital account.

Debit Kelley, Capital $20,000

Credit Cash $20,000

To close cash withdrawal by Kelley to the capital account.

2. Balances of the Partners' Capital Accounts as of December 31, 2017:

                                           Eckert      Kelley

Balances                        $106,750   $79,250

Explanation:

a) Data and Calculations:

                                               Eckert     Kelley

Capital contributions:

Cash                                   $82,500

Land                                                   $60,000

Building                                              100,000

Long-term note payable                   (92,500)

Assets' bases                  $82,500  $67,500

Annual salary allowance  25,000

Annual interest allowance 8,250       6,750

Cash drawings                 34,000    20,000

Net income at December 31, 2017 = $90,000

Sharing of net income:

                                               Eckert     Kelley       Total

Annual salary allowance  25,000                       $25,000

Annual interest allowance 8,250       6,750         15,000

Sharing of profit (1:1)        25,000     25,000        50,000

Total                               $58,250    $31,750     $90,000

Analysis:

Cash $82,500 Eckert, Capital $82,500

Land $60,000 Building $100,000 Long-term note payable                   $92,500 Kelley, Capital $67,500

Eckert, Capital $34,000 Cash $34,000

Kelley, Capital $20,000 Cash $20,000

Income Summary $90,000 Eckert, Capital $58,250 Kelley, Capital $31,750

Balances of the Partners' Capital Accounts as of December 31, 2017:

                                           Eckert      Kelley

Assets' bases                  $82,500   $67,500

Income summary              58,250       31,750

Cash withdrawals            (34,000)    (20,000)

Balances                        $106,750   $79,250