Midterm Exam for Company Accounting

Answer the following questions

Question 1 ( 15 Points)

On March 1, 2011, Smith and Jones formed a partnership. Smith contributed $80,000 cash and Jones contributed land valued at $35,000 and a building valued at $10,000. The partnership also assumed responsibility for Jones’s $5,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Smith receives $15,000 and Jones receives $10,000 as annual salaries. Both are to receive an annual interest allowance of 5% of their beginning-year capital investment, and any remaining income or loss is to be shared equally. On October 20, 2011, Smith withdrew $5,000 cash and Jones withdrew $1,000 cash. On December 31, 2011, the Income Summary account had a credit balance of $60,000.

1) Prepare journal entries to record (a) the partners’ initial capital investments, (b) their cash withdrawals, and (c) the December 31 closing of both the Withdrawals and Income Summary accounts.

2) Determine the balances of the partners’ capital accounts as of December 31, 2011. (i.e. prepare the statement of partners’ equity for year 2011).

Question 2 ( 5 Points)

Ahmed and Mahmoud are partners in a general partnership. Ahmed’s capital is $52,000 and Mahmoud’s capital is $26,000. They agree to accept Moustafa as a partner with a 25% interest in the partnership upon his investment of 42,000 cash in the partnership. Any bonus is attributable to the existing partners and is shared equally.

a) Prepare journal entry to record the admission of the new partner.

b) Determine the balances of the partners’ capital after admission of Moustafa.

Question 3 ( 5 Points)

Habiba plans to leave the YHN Partnership. The recorded value of her capital account is $48,000. The remaining partners Youssef and Nour agree to pay Habiba $40,000 cash. The partners have agreed to share income and loss equally. Prepare the general journal entry to record the withdrawal from the...