Reference no: EM132514604

Question - A partnership is formed between partners A and B. A invests cash of $100,000, and B invests several assets with the following book and fair values. These assets are:

1. Office space with book and fair values of $40,000 and $60,000 respectively.

2. Office furniture and equipment with book and fair values of $30,000 and $20,000 respectively.

3. Accounts Receivable with book and fair values of $20,000 and $18,000 respectively.

Each partners account is to be credited with 5% of their January 1 beginning capital balance. B is to be paid a salary 0f $6,000 annually. The partnership earned $25,000 for the year ending December 31, 2019.

The goodwill method is to be used in the formation, admission of new partners, and withdrawals of partners.

Required -

1. Prepare appropriate journal entry to record the formation of the partnership on January 1, 2019.

2. Create schedule that shows the allocation of interest, salary, and income allocation to each partners capital account.

3. Prepare then 2019 year end closing entry (ies) for the partnership. Assume all revenue and expense accounts have already been closed to the income summary account.