Reference no: EM133105859

Problem 1 - G. Johnson, N. Garcia, and J. Norton work for the same large specially machine manufacturing company as manufacturing engineers. The company made high-precision parts for defense contractors. In February 2021 they decided to go into business together as a partnership manufacturing the same high precision parts.

They had a partnership agreement drawn up in March 2021 and started their own business as a partnership on April 1, 2021. The partnership agreement called for an investment of cash and or equipment by each of the partners. B. Johnson invested $250,000 in cash into the partnership. N. Garcia invested 3 Hardinge CNC laths that he bought new $100,000 each. They have been depreciated and their book value on 3/31/2021 was $61,000each. Since there was a shortage of these lathes, they could be sold used for $70,000 each on 4/1/2021 when they became the property of the partnership. J. Norton donated the ownership of a small commercial property that she owned. She had inherited the property seven years ago and it had been depreciated to the point where its book value was $185,000. An independent real estate appraiser estimates that the land itself was worth $200,000 and the building another $125,000 on 4/1/2021.

Required - Make the required journal entries to record the Assets and Capital that each partner put into the partnership.

Problem 2 - The partnership hired 2 highly skilled machinists to set up and maintain production runs on the three Hardinge CNC lathes. In September 2021 the partners decided they needed to hire another manufacturing engineer to keep up with the workload. They found it very difficult to find a suitable engineer for the job and decided to offer one of their colleagues from the company that they had worked for a percentage of the partnership to become a partner and join the company.

The partnership's CPA recommended that before a new partner is brought into the partnership, that the partnership's capital accounts be brought up to date to reflect the profits the company had made through September 30, 2021. In addition, she recommended that after that had been accomplished, distribute the profit to each partner under the existing partnership agreement. The original partnership agreement called for a distribution of profits to each partner based on the percentage of ownership that each partner had in the partnership. As of 9/30/2021 revenue generated by the business was $1,360,000 and the expenses were $1,025,000.

Required -

A. Calculate the amount of the profit that should be distributed to each partner.

B. Make the required journal to record the distribution of the profit as of 9/30/2021.

Problem 3 - The partnership offered A. Stone 10% of the ownership of the partnership for $150,000. Ms. Stone accepted the offer, invested the $150,000, and became a partner on October 1, 2021.

A new partnership agreement was entered into by all four of the partners on 10/1/2021.

The major change in the partnership agreement was that monthly salaries will be paid to each partner beginning on 10/31/2021 in the following amounts:

B. Johnson: $2,000 per month.

J. Garcia: 4, 500 per month.

J. Norton: $5, 100 per month.

A. Stone: $6,000 per month.

In addition, 8% interest will be paid on the capital balances at the end of each fiscal year before the profit at year-end is allocated to the partners. Any remaining profit would be prorated to each of the partnership capital accounts according to the percentage of the capital balance left after salaries and interest had been paid.

Required -

A. Calculate the bonus paid to each one of the original partners by Ms. Stone for her 10% share.

B. The distribution of the bonus, $23,000 was made to each of the founding partners according to the original partnership agreement. The agreement called for all income and bonuses to be distributed to each of the original partners as a percentage of the total capital invested in the partnership.

Calculate the distribution of the bonus to each of the founding partners on 10/1/202 and record the investment of A. Stone in the partnership when she became a partner.

Problem 4 - In the months of October, November and December the business continued to be successful and generated additional revenues totaling $835,000 and expenses of $629,000. Each month the salaries agreed to in the partnership agreement of 10/1/2021 were withdrawn by each of the partners. No other amounts had been added to or withdrawn from the partnership accounts as of 12/31/2021. The Drawing account each partner was up-to-date as of 12/31/2021.

Required -

A. Calculate the distribution of the profit 12/31/2021 using the profit sharing formula agreed to on 10/1/2021.

B. Make the require closing entries on 12/31/2021. Assume the following:

1. The Revenue and Expense accounts have been closed to the Income Summary account and that it contains the profit of the company as a Credit balance.

2. Each month the partners withdrew their monthly salary in cash and the transaction was correctly journalized to the partners Drawing Accounts.