Reference no: EM132793180

Question - In the early part of 2021, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business in 2020 but had never used an accountant's services.

Hugh and Jacobs began the partnership by contributing $145,000 and $95,000 in cash, respectively. Hugh was to work occasionally at the business, and Jacobs was to be employed full-time. They decided that year-end profits and losses should be assigned as follows:

Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the period.

A compensation allowance of $6,000 was to go to Hugh with a $25,000 amount assigned to Jacobs.

Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively.

In 2020, revenues totaled $170,000, and expenses were $143,000 (not including the partners' compensation allowance). Hugh withdrew cash of $8,000 during the year, and Jacobs took out $13,000. In addition, the business paid $7,000 for repairs made to Hugh's home and charged it to repair expense.

On January 1, 2021, the partnership sold a 20 percent interest to Thomas for $74,000 cash. This money was contributed to the business with the bonus method used for accounting purposes.

Required - Answer the following questions:

What journal entries should the partnership have recorded on December 31, 2020?

What journal entry should the partnership have recorded on January 1, 2021?