In the early part of 2018, the partners of Hugh, Jacobs, andThomas sought assistance from a local accountant. They had begun anew business in 2017 but had never used an accountant’sservices.

Hugh and Jacobs began the partnership by contributing $90,000and $40,000 in cash, respectively. Hugh was to work occasionally atthe business, and Jacobs was to be employed full-time. They decidedthat year-end profits and losses should be assigned as follows:

• Each partner was to be allocated 10 percent interest computedon the beginning capital balances for the period.
• A compensation allowance of $7,000 was to go to Hugh with a$17,000 amount assigned to Jacobs.
• Any remaining income would be split on a 4:6 basis to Hugh andJacobs, respectively.

  

In 2017, revenues totaled $115,000, and expenses were $87,000(not including the partners’ compensation allowance). Hugh withdrewcash of $6,000 during the year, and Jacobs took out $11,000. Inaddition, the business paid $7,500 for repairs made to Hugh’s homeand charged it to repair expense.

On January 1, 2018, the partnership sold a 20 percent interestto Thomas for $44,000 cash. This money was contributed to thebusiness with the bonus method used for accounting purposes.

C. What journal entries should the partnership have recorded onDecember 31, 2017? There are 4 JE needed, one to Record entry toreclassify payment made to repair personal residence, one to Recordentry to close drawings accounts for 2017, one to Record entry toclose revenue and expense accounts for 2017, and one to Record thedistribution of net income to partners.

D. What journal entry should the partnership have recorded onJanuary 1, 2018? There is one needed to Record the payment made byThomas using the bonus method.