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.
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