Question 1 - ADMITTING NEW PARTNERS Jeff Bowman and Kristi Emery, who have ending capital balances of $100,000 and $60,000, respectively, agree to admit two new partners to their business on August 18, 20--. Dan Bridges will buy one fifth of Bowman's capital interest for $30,000 and one-fourth of Emery's capital interest for $20,000. Payments will be made directly to the partners. Anna
Terrell will invest $50,000 in the business, for which she will receive a $50,000 capital interest.
1. Prepare general journal entries showing the transactions admitting Bridges and Terrell to the partnership.
2. Calculate the ending capital balances of all four partners after the transactions.
Question 2 - PREPARING PARTIAL FINANCIAL STATEMENTS AND CLOSING ENTRIES The partnership of Robo and Swing, CPAs, reported revenues of $215,000 and expenses of $80,000 on their year-end work sheet. Their capital balances as of January 1, 20--, were $55,000 for I. Robo and $45,000 for B. Swing. No additional investments were made during the year. As stated in their partnership agreement, after withdrawing salary allowances of $65,000 for Robo and $35,000 for Swing, the partners each withdrew their full 10% interest allowances on their January 1 capital balances. No additional withdrawals were made. Any remaining net income is to be divided on a 45-55 basis.
REQUIRED
1. Prepare the lower portion of the income statement of the partnership for the year ended December 31, 20--, showing the division of the partnership net income for the year.
2. Make a statement of partners' equity for the year ended December 31, 20--, and the partners' equity section of the balance sheet on that date.
3. Prepare closing entries for the partnership as of December 31, 20--. (For simplicity, use the account titles "Revenues" for all revenues and "Expenses" for all expenses.)
Review:
1. Identify three advantages of a partnership compared with a sole proprietorship.
2. Identify four disadvantages of a partnership form of business organization.