Reference no: EM132568245
Question - Red and White decided to enter into a partnership agreed as from 1 July 2019, with requirements as follows:
Red to contribute $15,000 cash, inventory with a fair value of $28,500, plant and machinery $80,000, accounts payable totalling $4,500.
White to contribute $13,500 cash, land and buildings $250,000, Accounts receivable $9,500. A mortgage of $150,000 secured over the Buildings was outstanding and the partnership agreed to assume the mortgage.
Profits and losses are to be divided between Red and White 2:1 respectively.
Interest of 8% pa is to be allowed on capital contributed by the partners. Interest at 10% is to be charged on partners' drawings.
Each partner will receive an annual salary of $20,000.
Red withdrew $15,000 on 1 January, 2020 and White withdrew $10000 on 1st April, 2020.
During the year ended 30th June, 2020, the income of the partnership totalled $164,600 and the expenses amounted to $46,000. (These figures did not exclude interest on capital and drawings and salaries).
Required -
1. Prepare general journal entries necessary to open the books of the partnership (narrations are not required).
2. Prepare Profit Distribution Statement/Schedule for the year ended 30th June 2020 (the partnership does not use retained earnings accounts).
3. Make the journal entry to transfer the final distribution from the Profit Distribution Statement to each partner (the partnership uses retained earnings accounts).
4. Calculate the capital balances for Just and Now at 30th June, 2020.
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