23 Nov Brian Snow and Wendy Waite formed a partnership on
Brian Snow and Wendy Waite formed a partnership on July 1. 2007. Brian invested cash $20000, inventory valued at $15000, and equipment valued at $67000. Wendy invested cash $50000 and land valued at $120000. The partnership assumed the $40000 mortgage on the land. On June 30, 2008, the partnership reported a net loss of $24000. The partnership contract specified that income and losses were to be allocated by allowing 10% interest on the original capital investment, salaries of $15000 to Brian and $20000 to Wendy, and the remainder to be divided in the ratio of 40:60. On July 1, 2008, Alan Young was admitted into the partnership with a $70000 cash investment. Alan was given a 30% interest in the partnership because of his special skills. The partners decided to use the bonus method to record the admission. Any bonus should be divided in the old ratio of 40:60. On June 30, 2009, the partnership reported a net income of $150,000. The new partnership contract stipulated that income and losses were to be divided in a fixed ratio of 20:50:30. On July 2, 2009, the fair value of equipment was decreased by $10,000 and the fair value of land was increased by $30,000. Brian withdrew from the partnership for personal reasons. Brian was given $40,000 cash and a $60000 note for his capital interest. Required: Prepare journal entries for each of the following events. Show computations. 1.Formation of the partnership 2.Distribution of the net loss for the first year 3.Admission of Alan into the partnership 4.Distribution of the net income for the second year 5.Withdrawal of Brian from the partnership under the bonus and goodwill method 6.Redo Alan’s admission using the goodwill method
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