On 1 July, 2014 Kaman and Kumon agreed to form a partnership in Superannuation Consulting Service. Kumon invested $450,000 cash and Kaman brought his...

On 1 July, 2014 Kaman and Kumon agreed to form a partnership in Superannuation Consulting Service. Kumon invested $450,000 cash and Kaman brought his business into the partnership as follows:

Kaman

Cash

35,000

Accounts Receivable

40,000

Office Supplies

8,000

Equipment

150,000

Accumulated Depreciation‐Equipment

25,000

Building

500,000

Accumulated Depreciation‐Building

120,000

Accounts Payable

80,000

Bank Loan

90,000

Based on estimation and existing market price, Kaman and Kumon agreed to value the assets as follows:

1. 1) Accounts receivable $34,000
2. 2) Office supplies $7,000
3. 3) Equipment $125,000
4. 4) Building $550,000

Both partners agreed to use allowance method in managing the bad debt accounts receivable. Kaman and Kumon agreed to share profit and loss by giving salaries per annum $25,000 to Kaman and $15,000 to Kumon, interest on capital 6% per annum. In addition, partners will be charge of interest on drawing 8% with the remainder distributed base on capital balance.

Required:

1. a) Give the journal entries to record the formation of the partnership on 1 July 2014
2. b) Assume at the end of the financial year 30 June 2017, Kaman and Kumon Capital showed $650,000 and $350,000 respectively. In addition Kumon and Kaman drawing showed $30,000 and $60,000. If the net profit of the year was $12,500, give the journal entries to distribute the earnings using the fixed capital balance method (method 2). Show all workings including profit distribution table