Abby Lally and Laura Russo formed a partnership on March 15, 2016. The partners agreed to contribute equal amounts of capital. Lally contributed her sole proprietorship’s assets and liabilities (credit balances in parentheses) as follows:
On March 15, Russo contributed 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. Russo agreed to accept 30% of the profits. During the period ended December 31, the partnership earned net income of $77,000. Lally’s withdrawals were $47,000, and Russo’s withdrawals totaled $23,000.
1. Journalize the partners’ initial contributions.
2. Prepare the partnership balance sheet immediately after its formation on March 15, 2016.
3. Journalize the closing of the Income Summary and partner Withdrawal accounts on December 31, 2016.