ACCT 340 Colorado Technical University Unit 1 IT Firm Partnership Case Study

Two people are starting a small IT firm. They come to you for advice on how to form a partnership. They have listed 2 scenarios and are asking you how to make journal entries for each one of the following transactions:

1. Two partners, A and B, start a partnership.
   • Partner A’s investment is the following:
     • Cash: $20,000
     • Inventory: $30,000
     • Accounts payable: $50,000
     • Computer equipment: $40,000
     • Accumulated depreciation: $20,000
   • Partner B’s investment is the following:
     • Cash: $10,000
     • Computer software: $20,000
2. Two partners, Small and Big, form a partnership in which Small invested $40,000 and Big invested $60,000 for a total capital of $100,000. But Small devotes more time to the business and earns more from the firm. They have agreed to share the profits as follows:
   • The first $20,000 is allocated on the partner’s capital balances.
   • The next $30,000 is allocated based on service: Small gets $20,000, and Big gets $10,000.
   • Any remaining profits are allocated equally.
   • The partnership’s net income is $100,000.
   • What is Small’s portion of the net income? What is Big’s portion of the net income? Make the entry for this allocation.