The Partnership of Sunland, Coronado, and Whispering engaged to adjust its accounting records and convert them uniformly to the accrual basis in anticipation of admitting Kerns as a new partner. Some accounts are on the accrual basis and some are on the cash basis. The partnership’s books were closed at December 31, 2024, by the bookkeeper, who prepared the general ledger trial balance that appears below. (Picture)
Your inquiries disclose the following:
1. The partnership was organized on January 1, 2023. No provision was made in the partnership agreement for the allocation of partnership profits and losses. During 2023, profits were allocated equally among the partners. The partnership agreement was amended, effective January 1, 2024, to provide for the following profit and loss ratio: Sunland, 40%; Coronado, 40%; and Whispering, 20%. The amended partnership agreement also stated that the accounting records were to be maintained on the accrual basis and that any adjustments necessary for 2023 should be allocated to the 2023 profit allocation agreement.
2. The following amounts were not recorded as prepayments or accruals (Picture 2)
The advances from customers were recorded as sales in the year the cash was received.
3. In 2024, the partnership recorded a provision of $8,400 for anticipated declines in inventory prices. You convinced the partners that the provision was unnecessary and should be removed from the books.
4. The partnership charged equipment purchased for $3,900 on January 1, 2024, to expense. This equipment has an estimated life of 10 years and an estimated salvage value of $500. The partnership depreciates its capitalized equipment using the declining balance method at twice the straight-line depreciation rate.
5. The partners agreed to establish an allowance for doubtful accounts at 2% of current accounts recievable and 5% of past-due accounts. At December 31, 2023, the partnership had $57,600 of accounts receivable, of which only $4,000 was past due. At December 31, 2024, 20% of accounts recievable was past due, of which $4,000 represented sales made in 2023 and was considered collectible. The partnership had written off uncollectible accounts in the year the accounts became worthless as follows: (Picture 3)
6. Goodwill was recorded on the books in 2024 and credited to the partners’ capital accounts in profit and loss ratio in recognition of an increase in the value of the business resulting from improved sales volume. The partners agreed tow rite off the goodwill before admitting the new partner.
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