Chapter 5
Partnerships
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AP-7A (
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On January 1, 2016, Bob, Mike and Amy form a partnership to start a small public accounting
firm. Bob, Mike and Amy have invested $64,000, $55,000 and $80,000 respectively. Mike has
also invested a piece of equipment worth $2,000. During the first year of operations in 2016,
the firm earned a net income of $280,000. All earnings are to be divided according to the
initial capital contribution of each partner. In addition, Bob and Amy withdrew $5,000 and
$7,000 cash from the business. During the second year of operations on January 1, 2017, a
new partner (Mia) was added to the firm. Mia purchased 80% of Amy’s investment and 10% of
Mike’s investment (equity) in the business.
Required
a) Assuming year-end is on December 31, prepare the journal entries to set up the
partnership, record the drawings and distribute the income for 2016. Also, prepare any
additional closing or adjusting entries.
Date
Account Title and Explanation
Debit
Credit
