Conway and Lawrence form a partnership by combining the assets and liabilities of their respective sole proprietorships. The following are the assets and liabilities of each partner and their market values.
| Conway |
|
Lawrence |
| Asset |
Book value |
Market value |
|
Asset |
Book Value |
Market value |
| Cash |
$20,000 |
|
|
Cash |
$10,000 |
|
| Accounts receivable |
$5,000 |
$3,000 |
|
Equipmnet |
$50,000 |
$30,000 |
| Note payable |
$10,000 |
|
|
Accumulated Depreciation |
$15,000 |
|
| Inventory |
$25,000 |
$28,000 |
|
Accounts Payable |
$7,000 |
|
Requirements:
1 Journalize the formation of the partnership.
Half way through the first year of operations Conway and Lawrence admit Korman to the partnership. Korman buys a 1/2 share for $37,000 in cash.
2 Journalize Korman's admission to the partnership.
The net income for the first year of oprations was $50,000. After giving Conway a salary of $20,000, the rest of the net income is split evenly among the partners.
3 Prepare an income distribution worksheet.
4 Journalize the closing of the income summary accounts to the capital accounts.
After 5 years of operation Conway, Korma, and Lawrence decide to dissolve their partnership. The following are the account balances before liquidation begins:
5 Complete the liquidating worksheet.
6 Journalize each step of the closing.