2015:
Matthew and Michael Goode (cousins) decide to form a partnership (M&M) on April 1, 2015.
Each contributed personally-owned assets to start the new company. Matthew Goode contributed
$100,250 in cash and property with book value of $57,750 and appraised value of $78,750.
Michael Goode contributed cash of $99,750; computer equipment with book value of $52,500
and appraised value of $21,000; a software library with book value of $63,000 and appraised
value of $23,500; and office equipment with book value of $57,750 and appraised value of
$26,250. M&M operates on a calendar year.
The Articles of Partnership stipulate that no goodwill is to be recognized and that the two will
start with capital balances equal to their contributions. Monthly cash draws of $1,350 each are
allowed, beginning June 1, 2015. Net income is to be allocated as follows:
(a)Matthew is to receive a compensation allowance of $2,625 per month for managing the day-
to-day operations of the partnership.
(b)Interest of 12.25% to be paid on ending balances of capital accounts, PLUS 15% interest on
ending capital balances in excess of $262,500 (all interest to be calculated without current
income allocation).
(c)Each partner is to receive a bonus equal to 15% of net income, after the compensation
allowance, interest, and bonuses. Negative bonuses are not allowed.
(d)Remainder of profit to be allocated in a 55:45 ratio, Matthew:Michael.
(e)Remainder of loss to be allocated in a 50:50 ratio.
Net partnership income for 2015 was $210,000.
2016:
June 1, 2016, Maxwell Goode (Matthew’s twin brother) joins the partnership (ThreeM). He
purchases 1/3 of Matthew’s ownership interest for cash of $78,750 and 1/4 of Michael’s
ownership interest for cash of $63,000, paid directly to the partners.
The Articles of Partnership are amended as follows for allocation of net income:
(a)In addition to Matthew’s compensation allowance, Michael will receive a compensation
allowance of $1,575 per month, and Maxwell $1,260 per month.
(b)Unchanged.
(c)Matthew, Michael, and Maxwell are to receive bonuses of 12.5%, 12.5% and 10%,
respectively, of net income after the compensation allowances, interest, and bonuses. Negative
bonuses are not allowed.
(d)Remainder of profit to be allocated in a 40:35:25 ratio, Matthew:Michael:Maxwell.
(e)Remainder of loss to be allocated equally among the three partners.
Net partnership income for 2016 was $262,500.
2017:
Morgan (Michael’s younger brother) is admitted to the partnership (MM MM Goode) on January
2, 2017. He purchases a 32% interest for a cash payment of $260,000, paid directly to the
partnership.
The Articles of Partnership are amended as follows for allocation of net income:
(a)Partners will receive the following compensation allowances per month: Matthew, $3,150;
Michael, $2,625; Maxwell, $2.200; and Morgan, $2,000.
(b)Unchanged.
(c)Matthew, Michael, Maxwell, and Morgan are to receive bonuses of 12%, 12%, 10%, and
10%, respectively, of net income after the co.
2015Matthew and Michael Goode (cousins) decide to form a partners.pdf
1. 2015:
Matthew and Michael Goode (cousins) decide to form a partnership (M&M) on April 1, 2015.
Each contributed personally-owned assets to start the new company. Matthew Goode contributed
$100,250 in cash and property with book value of $57,750 and appraised value of $78,750.
Michael Goode contributed cash of $99,750; computer equipment with book value of $52,500
and appraised value of $21,000; a software library with book value of $63,000 and appraised
value of $23,500; and office equipment with book value of $57,750 and appraised value of
$26,250. M&M operates on a calendar year.
The Articles of Partnership stipulate that no goodwill is to be recognized and that the two will
start with capital balances equal to their contributions. Monthly cash draws of $1,350 each are
allowed, beginning June 1, 2015. Net income is to be allocated as follows:
(a)Matthew is to receive a compensation allowance of $2,625 per month for managing the day-
to-day operations of the partnership.
(b)Interest of 12.25% to be paid on ending balances of capital accounts, PLUS 15% interest on
ending capital balances in excess of $262,500 (all interest to be calculated without current
income allocation).
(c)Each partner is to receive a bonus equal to 15% of net income, after the compensation
allowance, interest, and bonuses. Negative bonuses are not allowed.
(d)Remainder of profit to be allocated in a 55:45 ratio, Matthew:Michael.
(e)Remainder of loss to be allocated in a 50:50 ratio.
Net partnership income for 2015 was $210,000.
2016:
June 1, 2016, Maxwell Goode (Matthew’s twin brother) joins the partnership (ThreeM). He
purchases 1/3 of Matthew’s ownership interest for cash of $78,750 and 1/4 of Michael’s
ownership interest for cash of $63,000, paid directly to the partners.
The Articles of Partnership are amended as follows for allocation of net income:
(a)In addition to Matthew’s compensation allowance, Michael will receive a compensation
allowance of $1,575 per month, and Maxwell $1,260 per month.
(b)Unchanged.
(c)Matthew, Michael, and Maxwell are to receive bonuses of 12.5%, 12.5% and 10%,
respectively, of net income after the compensation allowances, interest, and bonuses. Negative
bonuses are not allowed.
(d)Remainder of profit to be allocated in a 40:35:25 ratio, Matthew:Michael:Maxwell.
(e)Remainder of loss to be allocated equally among the three partners.
Net partnership income for 2016 was $262,500.
2. 2017:
Morgan (Michael’s younger brother) is admitted to the partnership (MM MM Goode) on January
2, 2017. He purchases a 32% interest for a cash payment of $260,000, paid directly to the
partnership.
The Articles of Partnership are amended as follows for allocation of net income:
(a)Partners will receive the following compensation allowances per month: Matthew, $3,150;
Michael, $2,625; Maxwell, $2.200; and Morgan, $2,000.
(b)Unchanged.
(c)Matthew, Michael, Maxwell, and Morgan are to receive bonuses of 12%, 12%, 10%, and
10%, respectively, of net income after the compensation allowances, interest, and bonuses.
Negative bonuses are not allowed.
(d)Remainder of profit to be allocated equally among the four partners.
(e)Remainder of loss to be allocated 35:30:25:10 to Matthew, Michael, Maxwell, and Morgan.
Net partnership income for 2017 was $236,250.
REQUIREMENTS:
For each year of data, prepare journal entries as necessary to record formation of the partnership,
admission of new partners, and closing of the income summary and drawing accounts. Also
prepare a Schedule of Allocation of Net Income and a Statement of Partners’ Capital for each
year. USE GOOD FORMAT, and show all calculations. Show a single, cumulative (from 2015
through 2017) T-account for each partner’s Capital account.
Solution
Sr. No
Particulars
Debit Amount
(In Dollars)
Credit Amount
(In Dollars)
FOR FORMING PARTNERSHIP (IN 2015)
CASH A/C DR
PROPERTY A/C DR
TO METHEW CAPITAL A/C
100250
78750
179000
3. CASH A/C DR
EQIPMENT A/C DR
SOFTWARE A/C DR
OFFICE EQIPMENT A/C DR
TO MICHEAL CAPITAL A/C
99750
21000
23500
26250
170500
DURING THE YEAR (1 JUNE 2015 TO 31ST MAY 2016)
MICHEAL A/C DR
METHEW A/C DR
TO DRAWING
16500
16500
32400
COMPANSATION ALLOWANCE A/C DR
TO METHEW CAPITAL A/C
31500
31500
Sr. No
Particulars
Debit Amount
(In Dollars)
Credit Amount
(In Dollars)
FOR FORMING PARTNERSHIP (IN 2015)
CASH A/C DR
PROPERTY A/C DR
TO METHEW CAPITAL A/C
100250
78750
179000
CASH A/C DR
EQIPMENT A/C DR
4. SOFTWARE A/C DR
OFFICE EQIPMENT A/C DR
TO MICHEAL CAPITAL A/C
99750
21000
23500
26250
170500
DURING THE YEAR (1 JUNE 2015 TO 31ST MAY 2016)
MICHEAL A/C DR
METHEW A/C DR
TO DRAWING
16500
16500
32400
COMPANSATION ALLOWANCE A/C DR
TO METHEW CAPITAL A/C
31500
31500
