n May 1, Fine and Max formed a partnership. Fine contributed cash of $90,000 and

Question

n May 1, Fine and Max formed a partnership. Fine contributed cash of $90,000 and equipment valued at $152,000. Max contributed land valued at $120,000 and a building valued at $250,000. The partnership also assumed responsibility for Max's $110,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Fine is to receive a salary allowance of $38,000, both are to receive an annual interest allowance of 8% of their beginning-year capital investments, and any remaining income or loss is to be shared equally. During the year, Fine withdrew $40,000 and Max withdrew $42,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at the end of the year, the Income Summary account had a credit balance of $140,000. Prepare the journal entries to record (a) the partners' initial capital investments, (b) their cash withdrawals, and (c) closing of both the Withdrawals and Income Summary accounts.

1. Create a Journal Entry

2. Income distribution Table

Explanation / Answer

Fine and Max Partnership Firm Journal Entries (All amounts in $) (a) The partners' initial capital investments Cash A/c DR 90000 Equipment A/c DR 152000 To Fine Capital A/c 242000 Land A/c DR 120000 Building A/c DR 250000 To Long Term Note A/c 110000 To Max Capital A/c 260000 (b) Partner's Cash Withdrawals Fine Capital Withdrawal A/c 40000 To Cash A/c 40000 Max Capital Withdrawal A/c 42000 To Cash A/c 42000 (c) Closure of withdrawal accounts and income accounts Fine Capital A/c DR 40000 To Fine Capital Withdrawal A/c 40000 Max Capital A/c DR 42000 To Max Capital Withdrawal A/c 42000 (d) Closing Adjustment entries Income Summary Account A/c DR 140000 To Retained Earnings A/c 140000 (e) Income Distribution Table Net Income Salary Allowance Interest on Capital Balance Income/(Loss) Total Share 140000 Fine 38000 19360 30920 88280 Max 20800 30920 51720 140000 38000 40160 61840 140000

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