Reference no: EM132869163

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 $140,000 and $90,000 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 $7,000 was to go to Hugh with a $23,000 amount assigned to Jacobs. Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively.
• In 2020, revenues totaled $165,000, and expenses were $140,000 (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 $6,500 for repairs made to Hugh's home and charged it to repair expense.
• On January 1, 2021, the partnership sold a 10 percent interest to Thomas for $41,000 cash. This money was contributed to the business with the bonus method used for accounting purposes.

Question 1: What journal entry should the partnership have recorded on December 31, 2020?

Question 2: What journal entry should the partnership have recorded on January 1, 2021?