Prepare journal entries to record the allocation of profit

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Reference no: EM132752567

Mark, Sara and Tom are independent website developers who had been trading in active opposition to one another for some years. They decide to form a partnership, WWW Web Developers, as from 1 January 2019. The agreement set out the following basic arrangements:

Mark to contribute $18 000 in cash, and to act as managing partner at a salary of $15 000 per year.
Sara to contribute office furniture valued at $18 500 with a bank loan of $8 000, computers of $10 000 and $18 000 in cash.
Tom to contribute computers valued at $13 750 on Tom's accounting record, and debtors of $12 000. The fair value of these computers is $2 000 less than Tom's record.
Interest for the period is to be allowed partners at the rate of 7% p.a. on their original capital contributions. Sara withdrew $4 000 on 1 April 2019, and interest at 10% p.a. to be charged on her drawings.
Residual profits or losses to be shared among Mark, Sara and Tom in the proportion of 1:2:2 respectively.

Ignore GST

Required

Problem A. Prepare the journal entries necessary to open the records of the partnership. (5 Marks)

Problem B. Assuming in the first year that the partnership makes a profit of $105 000, prepare the journal entries to record the allocation of profit for the year ended 31 December 2019, using Method 1.

Reference no: EM132752567

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