Acc407 Modern Advanced Accounting: Problem 2.2 The condensed balance sheet of Gee & Hawe LLP

Acc407 Modern Advanced Accounting Part of Week 1 Assignment Problem 2.2 The condensed balance sheet of Gee & Hawe LLP on December 31, 2004, follows: GEE & HAWE LLP Balance Sheet December 31, 2004 Assets Liabilities and Partners' Capital Current assets 100,000 Liabilities 300,000 Plant Asset (net) 500,000 Louis Gee, Capital 200,000 Ray Hawe, Capital 100,000 Total 600,000 Total 600,000 Gee and Hawe shared net income or losses 40% and 60%, respectively. On January 2, 2005, Lisa Ivan was admitted to Gee, Hawe & Ivan LLP by the investment of the net assets of her highly profitable proprietorship. The partners agreed to the following current fair values of the identifiable net assets of Ivan's proprietorship: Current Assets 70,000 Plant Assets 230,000 Total Assets 300,000 Less: Liabilities 200,000 Net Assets 100,000 Ivan's Capital account was credited for $120,000. The partners agreed further that the current fair values of the net assets of Gee and Hawe LLP were equal to their carrying amounts and that the accounting records of the old partnership should be used for the new partnership. The following partner-remuneration plan was adopted for the new partnership: 1. Salaries of $10,000 to Gee, $15,000 to Hawe, and $20,000 to Ivan, to be recognized as expenses of the partnership. 2. A bonus of 10% of income after deduction of partners' salaries and the bonus to Ivan. 3. Remaining income or loss as follows: 30% to Gee, 40% to Hawe, and 30% to Ivan. For the Fiscal year ended December 31, 2005, Gee, Hawe, and Ivan LLP had income of $78,000 before partners' salaries and the bonus to Ivan. Instructions: Prepare journal entries for Gee, Hawe and Ivan LLP to record the following (include supporting computations in the explanations for the entries): A. The Admission fo Ivan to the partnership on January 2, 2005. B. The Partner's salaries, bonus and division of net income for the year ended December 31, 2005.