Question

Will and Kate form a partnership selling royal souvenirs to tourists. Both contribute cash of $20,000 each to commence the partnership, but Kate also contributes $20,000 in souvenirs to the business, while Will additionally contributes $30,000 in equipment to move the souvenirs. They agree that any profits/losses will be shared equally. The partnership struggles from the beginning, with tourists not really purchasing their products. Within 6 months, both Will and Kate agree to go their separate ways, and terminate the partnership Here is a brief of their balance sheet: Assets: Cash $15,000 Inventory $15,000 Equipment (net book value) $25,000 Liabilities: Bank Loan $25,000 Partnership owners' equity Will Capital Kate capital $20,000 $10,000 Subsequently, the equipment is sold for $20,000. The souvenirs are sold at a fire sale, yielding cash revenues equal to half their cost as reported in the asset section above. Required: Journalise the formation of the partnership, and dissolution of the partnership.

Answer 1

	Account Titles and Explanation	Debit	Credit
1	Formation of the Partnership:
	Cash	40000
	Inventory	20000
	Equipment	30000
	Kate, capital ($20000 + $20000)		40000
	Will, capital ($20000 + $30000)		50000
	(To record capital contributed by partners)
2	Dissolution of the Partnership:
	Cash [$20000 + ($15000/2)]	27500
	Kate, capital ($12500 x 1/2)	6250
	Will, capital ($12500 x 1/2)	6250
	Equipment		25000
	Inventory		15000
	(To record disposal of assets)
	Bank loan	25000
	Cash		25000
	(To record repayment of bank loan)
	Kate, capital	3750
	Will, capital	13750
	Cash		17500
	(To record distribution of remaining cash on dissolution of partnership)