Question

On February 1, 2020, Tessa Williams and Audrey Xie formed a partnership in Ontario. Williams contributed $82,000 cash and Xie contributed land valued at $122,000 and a small building valued at $182,000. Also, the partnership assumed responsibility for Xie’s $132,000 long-term note payable associated with the land and building. The partners agreed to share profit or loss as follows: Williams is to receive an annual salary allowance of $92,000, both are to receive an annual interest allowance of 12% of their original capital investments, and any remaining profit or loss is to be shared equally. On November 20, 2020, Williams withdrew cash of $62,000 and Xie withdrew $47,000. After the adjusting entries and the closing entries to the revenue and expense accounts, the Income Summary account had a credit balance of $162,000.

Required:
1. Present general journal entries to record the initial capital investments of the partners, their cash withdrawals, and the December 31 closing of the Income Summary and withdrawals accounts.

Answer 1

Solution:

Feb-01	Cash	82,000
	Land	122,000
	Building	182,000
	Long term note		132,000
	Tessa Williams , capital		82,000
	Audrey Xie, capital		172,000
Nov-20	Tessa Williams, Withdrawals	62,000
	Audrey Xie, Withdrawals	47,000
	Cash		109,000
Dec-31	Income summary	162,000
	Tessa Williams , capital		121,600
	Audrey Xie, capital		40,400

　

Working:

	Tessa Williams	Audrey Xie
Salary	92,000
Interest @12%	9840	20640
82,000*12%; 172,000*12%
P/L	19,760	19,760
(162000 - 92000 - 9840 - 20,640) * 50%
Total	121,600	40,400