Andrew Orr and Victoria Graham formed a partnership, dividing income as follows:

Andrew Orr and Victoria Graham formed a partnership, dividing income as follows:

1. Annual salary allowance to Orr of $28,000.
2. Interest of 6% on each partner’s capital balance on January 1.
3. Any remaining net income divided to Orr and Graham, 2:1.

Orr and Graham had $60,000 and $150,000, respectively, in their January 1 capital balances.

Net income for the year was $46,000.

How much net income should be distributed to Orr?


Answer:


















Distributed to Orr and Graham:
Orr Graham Total
Annual salary……………………$28,000 $ 0 $28,000
Interest………………………… 3,6001 9,0002 12,600
Remaining income…………… 3,6003 1,8004 5,400
Total distributed to partners…$35,200 $10,800 $46,000
1 $60,000 × 6%
2 $150,000 × 6%
3 ($46,000 – $28,000 – $12,600) × 2/3
4 ($46,000 – $28,000 – $12,600) × 1/3
Orr: $35,200




Rachel Bell contributed a patent, accounts receivable, and $51,000 cash to a partnership. The patent had a book value of $45,000. However, the technology covered by the patent appeared to have significant market potential. Thus, the patent was appraised at $195,000. The accounts receivable control account was $65,000, with an allowance for doubtful accounts of $3,000. The partnership also assumed a $12,000 account payable from Bell. Provide the journal entry for Bell’s contribution to the partnership.


Answer:










Cash 51,000
Accounts Receivable 65,000
Patent 195,000
Accounts Payable 12,000
Allowance for Doubtful Accounts 3,000
Rachel Bell, Capital 296,000