Reference no: EM133088052

Question - Partnership Accounting - On January 1, 2021, Emerson and Lake LLP admitted Palmer to a 20% interest in net assets for an investment of $60,000 cash. Prior to the admission of Palmer, Emerson and Lake had net assets as follows:

Emerson Capital; $80,000

Lake Capital; $100,000

Before the admission of Palmer, the profit-loss sharing ratio was 25% to Emerson and 75% to Lake. After the admission of Palmer, the partnership contract included the following provisions:

Salary of $40,000 a year to Palmer.

Interest of 10% on the beginning of the year capital balances.

Remaining net income in ratio Emerson 20%, Lake 60%, Palmer 20%

During the fiscal year ended December 31, 2021, the partnership had income of $80,000.

Required -

a. Record the journal entry for the admission of Palmer. Goodwill is to be recorded.

b. Record the journal entry to allocate the 2021 net income to the three partners (assuming all revenue and expense accounts have been closed to income summary).