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Account for partner investments and distribution

Lorena Lally and Allie Raras formed a partnership on March 15. The partners
agreed to invest equal amounts of capital. Lally invested her proprietorship's assets
and liabilities (credit balances in parentheses). See the table that follows.

Lally's Current
Book Values Market Values
Accounts receivable......................... $12,300 $10,600
Inventory......................................... 47,000 38,000
Prepaid expenses ............................. 3,600 3,400
Store equipment .............................. 41,000 28,000
Accounts payable ............................ (24,000) (24,000)
On March 15, Raras invested cash in an amount equal to the current market value of
Lally's partnership capital. The partners decided that Lally will earn 70% of partnership
profits because she will manage the business. Raras agreed to accept 30% of the
profits. During the period ended December 31, the partnership earned net income of
$74,000. Lally 's drawings were $42,000, and Raras 's drawings totaled $22,000.

Requirements
1. Journalize the partners' initial investments.
2. Prepare the partnership balance sheet immediately after its formation on March 15.
3. Journalize the closing of the Income summary and partner Drawing accounts on
December 31.

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Solution Summary

This posting demonstrate the journal entry to record an initial investment into a partnership, the allocation of profit and losses according to agreed upon ratio, distribution of cash from partnership, and their impact on partner's capital accounts, respectively.

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