Mar. 2 The partners contribute assets to the partnership at the following agreed amounts — March 2016 Zoe Moreau Karen Krneta and Veronica Visentin start operate personal

On March 2, 2016, Zoe Moreau, Karen Krneta, and Veronica Visentin start a partnership to operate a personal coaching and lifestyle consulting practice for professional women. Zoe will focus on work-life balance issues, Karen on matters of style, and Veronica on health and fitness. They sign a partnership agreement to split profits in a 3:2:3 ratio for Zoe, Karen, and Veronica, respectively. The following are the transactions for MKV Personal Coaching:

2016

Mar. 2 The partners contribute assets to the partnership at the following agreed amounts:

They also agree that the partnership will assume responsibility for Karen’s note payable of $5,000.

Dec. 20 Zoe, Karen, and Veronica each withdraw $30,000 cash as a “year-end bonus.” No other withdrawals were made during the year.

31 Total profit for 2016 was $110,000.

2017

Jan. 5 Zoe and Veronica approve Karen’s request to withdraw from the partnership for personal reasons. They agree to pay Karen $15,000 cash from the partnership.

6 Zoe and Veronica agree to change their profit-sharing ratio to 4:5, respectively.

Dec. 20 Zoe and Veronica withdraw $42,750 and $45,000 cash, respectively, from the partnership.

31 Total profit for 2017 was $123,750.

Zoe and Veronica agree to admit Dela Hirjikaka to the partnership. Dela will focus on providing training in organizational skills to clients. Dela invests $31,000 cash for 25% ownership of the partnership.

Instructions

(a) Record the above transactions. For the profit earned each year, calculate how it is to be allocated and record the closing of the Income Summary account.

(b) Prepare the partners’ equity section of the balance sheet after Dela is admitted to the partnership.

TAKING IT FURTHER

Every time a new partner is admitted to a partnership or a partner withdraws from a partnership, it is necessary to completely close the accounting records of the existing partnership and start new accounting records for the new partnership. Do you agree or disagree? Explain.

SOLUTION

(a)

2016

Mar. 2 Cash 15,000

Equipment 18,000

Z. Moreau, Capital 33,000

2 Cash 10,000

Furniture 17,000

Notes Payable 5,000

K. Krneta, Capital 22,000

2 Cash 20,000

Equipment 13,000

V. Visentin, Capital 33,000

Dec. 20 Z. Moreau, Drawings 30,000

K. Krneta, Drawings 30,000

V. Visentin, Drawings 30,000

Cash 90,000

31 Income Summary 110,000

Z. Moreau, Capital ($110,000 × 3/8) 41,250

K. Krneta, Capital ($110,000 × 2/8) 27,500

V. Visentin, Capital ($110,000 × 3/8) 41,250

MKV PERSONAL COACHING

Capital Balances December 31, 2016

Z. Moreau K. Krneta V. Visentin Total

Investments $33,000 $22,000 $33,000 $88,000

Drawings (30,000) (30,000) (30,000) (90,000)

Profit 41,250 27,500 41,250 110,000

Ending Balance $44,250 $19,500 $44,250 $108,000

2017

Jan. 5 K. Krneta, Capital 19,500

Z. Moreau, Capital 2,250

V. Visentin, Capital 2,250