Account for formation of a partnership, allocation of profits, and admission and withdrawal of partners; prepare statement of partners' equity.
(LO 2, 3, 4, 5, 6) AP
On February 14, 2016, Isabelle Moretti, Aida Kam, and Channade Fenandoe start a partnership to operate a marketing consulting practice. They sign a partnership agreement to split profits in a 2:3:4 ratio for Isabelle, Aida, and Channade, respectively. The following are transactions for MKF Marketing:
Feb. 14 The partners contribute assets to the partnership at the following agreed amounts:
Cash $ 9,000 $12,000 $18,000
Furniture 15,000
Equipment 24,000 40,000
Total $24,000 $36,000 $58,000
They also agree that the partnership will assume responsibility for Channade's accounts payable of $10,000.
Dec. 20 The partners agree to withdraw a total of $72,000 cash as a "year-end bonus." Each partner will receive a share proportionate to her profit-sharing ratio. No other withdrawals were made during the year.
31 Total profit for 2016 was $81,900.
2017
Jan. 5 The three partners agree to admit Carolyn Wells to the partnership. Carolyn will pay Channade $30,000 cash for 50% of her interest in the partnership. The profit-sharing ratio will be changed so that Carolyn is allocated 50% of what was previously allocated to Channade. The partnership's name is changed to MKFW Marketing.
Dec. 20 The partners agree to pay another year-end bonus. The total amount withdrawn is $91,800. Each partner will receive a share proportionate to her profit-sharing ratio. No other withdrawals were made during the year.
31 Total profit for 2017 was $103,050.
2018
Jan. 2 Channade withdraws from the partnership. The partners agree the partnership will pay her $25,550 cash. The partnership's name is changed to MKW Marketing.
Instructions
(a) Record the above transactions. For the profit earned each year, calculate how it is to be allocated and close the accounts to the Income Summary account.
(b) Prepare the statement of partners' equity for 2017.
(c) Calculate the balance in each partner's capital account on January 2, 2018, after Channade has withdrawn.