Account for partner investments, allocating profits and losses to the partners, preparing partnership financial statements
Lorena Lally and Allie Raras formed a partnership on March 15. The partners agreed to invest equal amounts of capital. Lally invested her proprietorship's assets and liabilities (credit balances in parentheses). See the table that follows.
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Lally's Book Values
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Current Market Values
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Accounts receivable
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$12,300
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$10,600
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Inventory
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47,000
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38,000
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Prepaid expenses
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3,600
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3,400
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Store equipment
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41,000
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28,000
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Accounts payable
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(24,000)
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(24,000)
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On March 15, Raras invested cash in an amount equal to the current market value of Lally's partnership capital. The partners decided that Lally will earn 70% of partnership profits because she will manage the business. Raras agreed to accept 30% of the profits. During the period ended December 31, the partnership earned net income of $74,000. Lally 's drawings were $42,000, and Raras 's drawings totaled $22,000.
Requirements
1. Journalize the partners' initial investments.
2. Prepare the partnership balance sheet immediately after its formation on March 15.
3. Journalize the closing of the Income summary and partner Drawing accounts on December 31.