Question

Determining characteristics of a partnership and accouoti.ng for partner contributions JjJ] Smith and HeffTables are forming a partnership, Bl:ack Leather Goods, co import merchandise &om Ireland. Smith is especially artistic and will a·avel co lreland ro buy rhe merchandise. Tables is a super salesman and has already li.ned up several department scores co sell the leather goods. Requirements 1. Whar is the purpose of the partnership agreement? 2. If the partnership agreement does nor scare rhe profit-and-loss-sharing ratios, how will proflrs or losses be shared? 3. Smith is contributing $135,000 in cash and accounts payable of $25,000. "fables is comriburing a building char cost Tables $105,000. The building'.s current marker value is $135,000. Journalize the contribution of the rwo partners.

Answer 1

1. The purpose of the partnership is to carry out a business activity. The activities have been divided based on strengths of respective partner. Smith is good at purchasing so he will travel and make purchases. Tables is a good salesman, so he will focus on sales and marketing
2. If the partnership agreement does not share the profit and loss sharing ration, it is deemed to be in equal ration. Here it will be 50% each since there are two partners.
3. Buildings (DR)                                     135,000

To Partners capital – Tables (CR) 135,000

(Being Building received as partners’ capital from Tables; Building to be capitalized at current market value)

Cash (DR) 135,000

Capital receivable from Smith (DR) - 25000

To Partners Capital - Smit (CR)135,000

To Accounts Payable (CR) – 25,000

(Being USD 135,000 received as partners capital from smith; there is accounts payable of 25,000 so this amount is still receivable from him to ensure capital of both partners is equal)