Example (1)

 K, S, and E are forming a partnership , K is transferring $

50000 of personal cash to the partnership . S owns land
worth $ 15000 and a small building worth $ 80000 , which
the transfers to the partnership . E transfers to the
partnership cash of $ 9000 , accounts receivable of 32000
and equipment worth $ 39000. The partnership expects to
collect $ 29000 of the accounts receivable .
 Required :
 Prepare the journal entries to record each of the partners'
investment .
 What amount would be reported as total owners' equity
immediately after investment .
 Solution
Cash 50000
K Capital 50000
( The record investment of K )
land 15000
Building 80000
S Capital 95000
( The record investment of K )
Cash 9000
Accounts receivable 32000
Equipment 39000
Allowance for doubtful acco. 3000
E Capital 77000
 Partnership
Balance sheet December 31, 2016

Assets Liabilities and owner equity

Cash 59,000 K Capital 50,000
A/R 32000 S Capital 95000
Less : Allowance for (3000) E Capital 77.000
doubtful accounts
Land 15000
Building 80000
Equipment 39000

Total 222000 Total 222000

 Example 2
 A , K , and O decided to engage in a real estate venture as a
partnership . A invested $ 100,000 cash , and K provided office
equipment that is carried on his books at $ 82,000 . The partners
agree that the equipment has a fair value of $ 110,000 . There is a
$ 30,000 note payable remaining on the equipment to be
assumed by the partnership . Although O has no physical assets
to invest in the partnership , both A and K believe that his
experience as a real estate appraiser is a valuable skill needed by
the partnership and is a basis for granting his a capital interest in
the partnership .
 Assuming that each partner is to receive an equal capital interest
in the partnership .
Required :
 Record the partnership formation under the bonus method .
 Prepare the balance sheet .
 Solution
Dr Cr
Cash 100,000
Equipment 110,000
Note payable 30,000
A Capital 60,000
K Capital 60,000
O Capital 60,000

Cash 100000 Capital A 60000

Equipment Assets 110000 Capital K &O.E
Liabilities 60000
Capital O 60000
Note payable 30000

Total 210000 210000

 Example 3
 S, M and Z form a partnership and agree to allocate income
equally after recognition of 10% interest on beginning capital
balances and monthly salary allowances of $ 2000 to S and 1500 $
to Z . Capital balances on January 1 were as follows :
 S $ 40000 , M 25000 and Z 30000 .
Required :
Calculate the net income ( loss ) allocation to each partner under
each of the following independent situation .
 Net Income for the year is $ 99,500
 Net Income for the year is $ 38,300
 Net losses for the year is $ 15,100
b- Journalize the allocation of net income .
 Solution
1- Allocation Net income 99500$

S M Z Total
Interest on Capital $4000 $2,,500 $3,000 $9,500
and Salary 24000 0 18000 42000
Remainder
Divided equally 16000 16000 16000 48000

Total 44000 18500 37000 $99,500

Income Summary 99,500

M, Capital 44000
S, Capital 18500
Z, Capital 37000
 Solution
2- Allocation Net income 38,300$

S M Z Total
Interest on Capital $28,000 $2.500 $21,000 $51,500
and Salary
Excess allocation
($38,300 - $51,500) (4,400) (4.400) (4,400) (13,200)
Total 23,600 (1,900) 16,600 $38,300

Income Summary 38,300

M, Capital 1,900
S, Capital 23,600
Z, Capital 16,600
 Solution
3- Net losses $15,100

S M Z Total
Interest on Capital and $28,000 $2,500 $21,000 $51,500
salary
Excess allocation
($15,100 + $51,500) (22,200) (22,200) (22,200) (66,600)
Total 5,800 (19,700) (1,200) (15,100)

Z, Capital 1.200
M, Capital 19,700
S, Capital 5,800
Income Summary 15,100
 Example 4
1/1/2014 Aly and Ahmad agreed to compose a company with
capital 60,000 L.E divided between them equally .
 Aly paid his part as:
 16,000 inventory and the remained cash
 Ahmad paid his part as:
 12,000 building, 8,000 inventory, 4,000 furniture and the
remained cash
Required:
 Journalize the entries
 Prepare balance sheet
 Solution
 Division of the capital
 Aly 30000
 Ahmad30000
1. Journal
Items Dr Cr
Inventory 16,000
cash 14,000
Capital Aly 30,000
( Aly paid his part)
Building 12,000
Inventory 8,000
Furniture 4,000
Cash 6,000
Capital Ahmad 30,000
(Ahmad paid his part)
 2. Balance sheet:-

Assets Liabilities
Capital:
Cash 20,000 Aly 30,000
Building 12,000 Ahmad 30,000
Furniture 4,000
Inventory 24,000

60,000 60,000
Example 5
 Ahmad and Basem partners agreed to compose a company
with capital 240,000 L.E. divided 2:1.
Every partner agreed to pay his part as assets and liabilities of
his company
Assets Ahmad Basem Liabilities Ahmad Basem
Fixed Assets
Building 80,000 60,000 Capital 140,000 90,000
Furniture 24,000 4,000 Liabilities
Current Assets Creditors 12,000 10,000
Inventory 18,000 20,000 N/P 8,000 4,000
Debtors 10,000 6,000
Notes receivable 12,000 8,000
Cash 16,000 6,000
160,000 104,000 160,000 104,000
 Division of the capital
 Ahmad =240000 × 2 ÷ 3=160000
 Basem =240000 × 1 ÷ 3=80000

Items Dr Cr
Building 80,000
Furniture 24,000
Inventory 18,000
Debtors 10,000
Notes receivable 12,000
Cash 16,000
Creditors 12,000
Notes payable 8,000
Capital Ahmad 140,000
Cash
Capital Ahmad 20,000
20,000
Building 60,000
Furniture 4,000
Inventory 20,000
Debtors 6,000
Notes receivable 8,000
Cash 6,000
Creditors 10,000
Notes payable 4,000
Capital Basem 90,000
Capital Basem
Example 6
Collected these information from a company for Karim and
Omar, they are partners and divided the profits equally
Fixed assets Capital
Building 4000 Karim 6000
Furniture 800 Omar 4000
Current assets Reserves 2.000
Inventory 6000 Liabilities
A/R 10000 Loan Karim 1000
Cash 1000 A/P 8700
Current acc. Karim 400 Current acc. Omar 500
Total 22.200 Total 22,200

The partners agreed to increase the capital to be 20,000 and divided the increase equally
and if you know :
The partners increase the capital by using :
1- The reserves
2- loan of the partner
3- Credit current account of the partner
4- Karim offers building 2,000
5- the partners will pay their accrued part as cash
Required: Journalize
2-make the new balance sheet
Items Karim Omar
Capital must be paid when increase 5000 5000
Building 2,000 --
Reserve 1000 1000
Current account 500
Loan 1000
Total balance 4000 1500
Amount must be paid for company 1000 3500

Building 2000
Capital Karim 2000
(recording the building offer)
Reserve 2,000
Capital Karim 1000
Capital Omar 1000
(Charge reserve to capital equally)
Loan Karim 1000
Capital Karim 1000
(transfer loan to capital)
Currant acc. Omar 500
Capital Omar 500
(transfer currant acc. to capital)

Cash 1000
Capital Karim 1000
(paid the accrued part cash)
Cash 3500
Capital Omar 3500
(paid the accrued part cash)
Example 7 :
K and H are partners in KH partnership , they share profits and losses equally
. The following is the balances for this partnership on Dec. 31 , 2014 :
Partnership
Balance sheet December 31, 2014
Assets Liabilities and owner equity
Cash 14,000 K Capital 60,000
A/R 22000 H Capital 60 000
Inventory 30000 Accounts payable 84000
loan receivable K 8000 Notes payable 70000
loan receivable H 20000
Equipment 140000
Building 40000
Total 274000 Total 274000
Partners agreed to reevaluate assets and liabilities to their fair value as
following :
 Inventories $ 20000
 Depreciation of equipment is 5% and building 10%
 Unrecorded accounts payable 1000
 Bad debts of 2000 .allowance for doubtful account 10% of accounts
receivable .
 Partners decide to reduce the partner's capital with 40000 $ by using
reevaluation account and loan receivable for partners .
 Total capital still will be shared equally .
Required :
 Journal entries .
 Re-evaluation account
 Balance sheet .
  Solution :
 Available accounts receivable after bad debts = 22000- 2000= 20000
 allowance for doubtful account = 20000 × 10% = 2000

Re-evaluation 4000
Accounts receivable 2000
allowance for doubtful account 2000
Re-evaluation 21000
Inventory 10000
Building 4000
Equipment 7000
Re-evaluation 1000
Accounts payable 1000

Re-evaluation account :
Accounts receivable 2000 K's Capital 13000
allowance for doubtful account 2000 H's Capital 13000
Inventory 10000
Building 4000
Equipment 7000
Accounts payable 1000
Total 26000 Total 26000
K's Capital 8000
H's Capital 20000
loan receivable K 8000
loan receivable H 20000
Cash 14000
K's Capital 1000
H's Capital 13000

Partnership
Balance sheet December 31, 2014
Assets Liabilities and owner equity
Cash 28,000 K Capital 40,000
A/R 20000 H Capital 40 000
(-)allowance for (2000) Accounts payable 85000
doubtful 20000 Notes payable 70000
Inventory 133000
Equipment 36000
Building
Total 235000 Total 235000