On 1 July, 2014 Kaman and Kumon agreed to form a partnership in Superannuation Consulting Service. Kumon invested $450,000 cash and Kaman brought his business into the partnership as follows:
Based on estimation and existing market price, Kaman and Kumon agreed to value the assets as follows:
- 1) Accounts receivable $34,000
- 2) Office supplies $7,000
- 3) Equipment $125,000
- 4) Building $550,000
Both partners agreed to use allowance method in managing the bad debt accounts receivable. Kaman and Kumon agreed to share profit and loss by giving salaries per annum $25,000 to Kaman and $15,000 to Kumon, interest on capital 6% per annum. In addition, partners will be charge of interest on drawing 8% with the remainder distributed base on capital balance.
- a) Give the journal entries to record the formation of the partnership on 1 July 2014
- b) Assume at the end of the financial year 30 June 2017, Kaman and Kumon Capital showed $650,000 and $350,000 respectively. In addition Kumon and Kaman drawing showed $30,000 and $60,000. If the net profit of the year was $12,500, give the journal entries to distribute the earnings using the fixed capital balance method (method 2). Show all workings including profit distribution table
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