In the early part of 2013, the partners of Page, Childers, and Smith sought assistance from a local accountant. They had begun a new business in 2012 but had never used an accountant s services.
In the early part of 2013, the partners of Page, Childers, and Smith sought assistance from a local accountant. They had begun a new business in 2012 but had never used an accountant’s services.
Page and Childers began the partnership by contributing $80,000 and $30,000 in cash, respectively. Page was to work occasionally at the business, and Childers was to be employed full-time. They decided that year-end profits and losses should be assigned as follows:
• Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the period.
• A compensation allowance of $5,000 was to go to Page with a $20,000 amount assigned to Childers.
• Any remaining income would be split on a 4:6 basis to Page and Childers, respectively.
In 2012, revenues totaled $90,000, and expenses were $64,000 (not including the compensation allowance assigned to the partners). Page withdrew cash of $8,000 during the year, and Childers took out $11,000. In addition, the business paid $5,000 for repairs made to Page’s home and charged it to repair expense.
On January 1, 2013, the partnership sold a 20 percent interest to Smith for $43,000 cash. This money was contributed to the business with the bonus method used for accounting purposes.
c. What journal entries should the partnership have recorded on December 31, 2012?
-To reclassify payment made to repair personal residence.
-To close drawings accounts for 2012.
-To close revenue and expense accounts for 2012.
-To close net income to partners’ capital.
d. What journal entry should the partnership have recorded on January 1, 2013?