Groucho, Harpo, and Chico form a partnership on January 1, 2018. Groucho contributes $90,000, Harpo $70,000, and Chico $40,000 to a business called Marx Brothers' Partnership. On a monthly basis, each partner is allocated income and is allowed to receive cash from the business in proportion to the capital they provided. Assume that Groucho receives $2,700 cash per month.Required:Part a. Prepare the journal entry for the initial investment.Part b. Determine the monthly distribution amounts for each of the three partners.Part c. Prepare the journal entry that would be made in one month for the monthly distribution.Part d. Prepare the journal entry for the allocation of an annual net income of $84,000. For purposes of this journal entry, assume Sales Revenue totaled $116,000 and that all

expenses, totaling $32,000, were recorded in a single account called Operating Expenses.Part e. Prepare the journal entry to close the Drawings accounts at the end of the year.Part f. Prepare a Statement of Partners' Equity (assume no additional investments made).

What will be an ideal response?

Part a

Cash

200,000

Groucho, Capital

90,000

Harpo, Capital

70,000

Chico, Capital

40,000

Part b
Partners' proportion of capital invested:

Groucho:

$90,000 ÷ $200,000 = 45%

Harpo:

$70,000 ÷ $200,000 = 35%

Chico:

$40,000 ÷ $200,000 = 20%

If Groucho receives 45% of the total drawings disbursed, or $2,700, the total drawings disbursement is $6,000 (or $2,700 ÷ 0.45). Harpo receives $2,100 (or $6,000 × 0.35) and Chico receives $1,200 ($6,000 × 0.2)

Part c

Groucho, Drawings

2,700

Harpo, Drawings

2,100

Chico, Drawings

1,200

Cash

6,000

Part d

Sales Revenue

116,000

Groucho, Capital (0.45 × $84,000)

37,800

Harpo, Capital (0.35 × $84,000 )

29,400

Chico, Capital (0.2 × $84,000)

16,800

Operating Expenses

32,000

Part e
Multiply the monthly income disbursements by 12 to determine the balance in the Drawings accounts at the end of the year but before closing.

Groucho, Capital

32,400

Harpo, Capital

25,200

Chico, Capital

14,400

Groucho, Drawings ($2,700 per month × 12)

32,400

Harpo, Drawings ($2,100 per month × 12)

25,200

Chico, Drawings ($1,200 per month × 12)

14,400

Part fMarx Brothers' Partnership
Statement of Partners' Equity
For the Year Ended December 31, 2018

Groucho

Harpo

Chico

Investments, January 1, 2018

$90,000

$70,000

$40,000

Additional Investments during year

Net income for the year

37,800

29,400

16,800

Totals

127,800

99,400

56,800

Less: Drawings during year

(32,400)

(25,200)

(14,400)

Partners' equity, December 31, 2018

$95,400

$ 74,200

$ 42,400

Business

You might also like to view...

Iterations are short time frames (time boxes) that typically last from ________.

A. 1-4 days B. 1-4 weeks C. 1-2 weeks D. 4-7 weeks E. 7-12 weeks

View

Business

Presentations to small groups

A) require more of a "you" attitude than talks to larger groups. B) increase the presenter's options for visual aids. C) require very emphatic gestures to oversell the key ideas. D) are delivered in a more formal tone than normal conversations. E) require time to understand any heterogeneous listeners.

View

Business

A public official or public figure can only win a defamation case by proving actual malice by the defendant

Indicate whether the statement is true or false

View

Business

Certain decisions in a partnership are so important that they must be unanimous

Indicate whether the statement is true or false

View

Business