Reference no: EM132755240

Frank, Mike and Wilson decided to form a partnership. On 01/01/2007, the partnership was formed. Frank contributed cash in the amount of $ 40,000, Mike contributed in inventory with book value of $20,000 and fair market value of $30,000, Wilson contributed a piece land with book value of 30,000 and fair value of $50,000, note that the land is encumbered by a loan (due in 2020) of $20,000 that the partnership agrees to assume.

Due to the different expertise and capital contribution, the partnership states that future profit/loss should be allocated in the following manner:

1. Each partner receives 2% interest of their beginning capital balance every year, note that if the partnership generates a loss, then no interest shall be paid; if the partnership fails to generate enough income to pay interest in full amount, then the income should be divided

according to partners' capital contribution.
2. Frank, Mike and Wilson then claim, respectively, 30%, 30% and 40% of remaining of the profit/loss every year.

Problem a. Write down the journal entries to record the creation of the partnership