In the early part of 2021, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business in 2020 but had never used an accountant's services. Hugh and Jacobs began the partnership by contributing $155,000 and $105,000 in cash, respectively. Hugh was to work occasionally at the business, and Jacobs 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 $8,000 was to go to Hugh with a $25,000 amount assigned to Jacobs. Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively. In 2020, revenues totaled $180,000, and expenses were $149,000 (not including the partners' compensation allowance). Hugh withdrew cash of $9,000 during the year, and Jacobs took out $14,000. In addition, the business paid $8,000 for repairs made to Hugh's home and charged it to repair expense. On January 1, 2021, the partnership sold a 10 percent interest to Thomas for $42,000 cash. This money was contributed to the business with the bonus method used for accounting purposes. Answer the following questions: c. What journal entries should the partnership have recorded on December 31, 2020?
In the early part of 2021, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business in 2020 but had never used an accountant's services. Hugh and Jacobs began the partnership by contributing $155,000 and $105,000 in cash, respectively. Hugh was to work occasionally at the business, and Jacobs 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 $8,000 was to go to Hugh with a $25,000 amount assigned to Jacobs. Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively. In 2020, revenues totaled $180,000, and expenses were $149,000 (not including the partners' compensation allowance). Hugh withdrew cash of $9,000 during the year, and Jacobs took out $14,000. In addition, the business paid $8,000 for repairs made to Hugh's home and charged it to repair expense. On January 1, 2021, the partnership sold a 10 percent interest to Thomas for $42,000 cash. This money was contributed to the business with the bonus method used for accounting purposes. Answer the following questions: c. What journal entries should the partnership have recorded on December 31, 2020?
Chapter7: Deductions And Losses: Certain Business Expenses And Losses
Section: Chapter Questions
Problem 42P
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Transcribed Image Text:In the early part of 2021, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new
business in 2020 but had never used an accountant's services.
Hugh and Jacobs began the partnership by contributing $155,000 and $105,000 in cash, respectively. Hugh was to work occasionally
at the business, and Jacobs 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 $8,000 was to go to Hugh with a $25,000 amount assigned to Jacobs.
• Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively.
In 2020, revenues totaled $180,000, and expenses were $149,000 (not including the partners' compensation allowance). Hugh
withdrew cash of $9,000 during the year, and Jacobs took out $14,000. In addition, the business paid $8,000 for repairs made to
Hugh's home and charged it to repair expense.
On January 1, 2021, the partnership sold a 10 percent interest to Thomas for $42,000 cash. This money was contributed to the
business with the bonus method used for accounting purposes.
Answer the following questions:
c. What journal entries should the partnership have recorded on December 31, 2020?
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