Partnership Formation and Distribution of Income (Appendix A, P1)
In January 2010, Ed Rivers and Bob Bascomb agreed to produce and sell chocolate candies. Rivers contributed $240,000 in cash to the business. Bascomb contributed the building and equipment, valued at $220,000 and $140,000, respectively. The partnership had an income of $84,000 during 2010 but was less successful during 2011, when income was only $40,000.
Questions:
1. Prepare the journal entry to record the investment of both partners in the partnership.
2. Determine the share of income for each partner in 2010 and 2011 under each of the following conditions:
( a) The partners agreed to share income equally.
( b) The partners failed to agree on an income- sharing arrangement.
( c) The partners agreed to share income according to the ratio of their origi-nal investments.
( d) The partners agreed to share income by allowing inter-est of 10 percent on their original investments and dividing the remainder equally.
( e) The partners agreed to share income by allowing salaries of $ 40,000 for Rivers and $ 28,000 for Bascomb, and dividing the remainder equally.
( f) The partners agreed to share income by paying salaries of $ 40,000 to Rivers and $ 28,000 to Bascomb, allowing interest of 9 percent on their original investments, and dividing the remainder equally.