The events that follow pertain to a partnership formed in February 2013 by Merci
ID: 2519014 • Letter: T
Question
The events that follow pertain to a partnership formed in February 2013 by Mercian Zadoney and Michael Slater to operate a floor-cleaning company:
Feb. 14, 2013
The partnership was formed. Zadoney transferred to the partnership $160,000 cash, land worth $160,000, a building worth $960,000, and a mortgage on the building of $480,000. Slater transferred to the partnership $80,000 cash and equipment worth $320,000.
Dec. 31, 2013
During 2013, the partnership earned income of just $168,000. The partnership agreement specifies that income and losses are to be divided by paying salaries of $80,000 to Zadoney and $120,000 to Slater, allowing 8 percent interest on beginning capital investments, and dividing any remainder equally.
Jan. 1, 2014
To improve the prospects for the company, the partners decided to take in a new partner, George Nissan, who had experience in the floor-cleaning business. Nissan invested $312,000 for a 25 percent interest in the business. A bonus was transferred in equal amounts from the original partners’ Capital accounts to Nissan’s Capital account.
Dec. 31, 2014
During 2014, the company earned income of $174,400. The new partnership agreement specified that income and losses would be divided by paying salaries of $120,000 to Slater and $160,000 to Nissan (no salary to Zadoney), allowing 8 percent interest on beginning capital balances after Nissan’s admission, and dividing the remainder equally.
Jan. 1, 2015
Because it appeared that the business could not support the three partners, the partners decided to liquidate the partnership. The asset and liability accounts of the partnership are as follows:
Accounts Receivable, net
Building, net
Equipment, net
Accounts Payable
Mortgage Payable
The equipment was sold for $400,000. The accounts payable were paid. The loss was distributed equally to the partners’ Capital accounts. A statement of liquidation was prepared, and the remaining assets and liabilities were distributed. Zadoney agreed to accept cash plus the land and building at book value and the mortgage payable as payment for his share. Slater accepted cash and the accounts receivable for his share. Nissan was paid in cash. Prepare journal entries to record all of the facts above.
Feb. 14, 2013
The partnership was formed. Zadoney transferred to the partnership $160,000 cash, land worth $160,000, a building worth $960,000, and a mortgage on the building of $480,000. Slater transferred to the partnership $80,000 cash and equipment worth $320,000.
Dec. 31, 2013
During 2013, the partnership earned income of just $168,000. The partnership agreement specifies that income and losses are to be divided by paying salaries of $80,000 to Zadoney and $120,000 to Slater, allowing 8 percent interest on beginning capital investments, and dividing any remainder equally.
Jan. 1, 2014
To improve the prospects for the company, the partners decided to take in a new partner, George Nissan, who had experience in the floor-cleaning business. Nissan invested $312,000 for a 25 percent interest in the business. A bonus was transferred in equal amounts from the original partners’ Capital accounts to Nissan’s Capital account.
Dec. 31, 2014
During 2014, the company earned income of $174,400. The new partnership agreement specified that income and losses would be divided by paying salaries of $120,000 to Slater and $160,000 to Nissan (no salary to Zadoney), allowing 8 percent interest on beginning capital balances after Nissan’s admission, and dividing the remainder equally.
Jan. 1, 2015
Because it appeared that the business could not support the three partners, the partners decided to liquidate the partnership. The asset and liability accounts of the partnership are as follows:
Cash $814,400Accounts Receivable, net
136,000 Land 160,000Building, net
896,000Equipment, net
472,000Accounts Payable
176,000Mortgage Payable
448,000Explanation / Answer
Date Paticulars Dr. Cr. Feb 14 2013 Cash A/c Dr. 160000 Land A/c Dr. 160000 Building A/c Dr. 960000 To Mortgage Loan A/c 480000 To Zadoney Cpital's A/c 800000 Feb 14 Cash A/c Dr. 80000 Equipmnt A/c Dr. 320000 To Slater Capital's A/c 400000 Dec 31 2013 Profit and loss appropriation A/c Dr. 200000 To Z's Capital A/c 80000 To S's capital A/c 120000 (Salary paid to partners) Dec 31 P&l Appropriation A/c Dr. 96000 To Z's cpital A/c 64000 To S's Capital A/c 32000 (Being Intt on Capital Distributed) Z's Capital A/c Dr. 64000 S's Capital A/c Dr. 64000 To. P&l Appropriation A/c 128000 (being loss distributed) Jan 1 2014 Cash A/c Dr. 312000 To George Nissan cap A/c 312000 dec 31 2014 p&l Appn A/c Dr. 280000 To S,s Capital A/c 120000 To GN Capital A/c 160000 P&L Appn A/c Dr. 135040 To Z,s Capital A/c 70400 To s Capital A/c 39040 To GN Cap A/c 25600 (Being Interest on capital Distributed) Z capital A/c Dr. 80213 S capital Ac Dr. 80213 GN a/c DR. 80213 To P&L Appropriation A/c Dr. 240700
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