Reference no: EM133111492

Question - In the early part of 2021, the partners of Hugh, Jacobs, and Thomas sought assistance from a local accountant. They had begun a new business in 2020 but had never used an accountant's services. Hugh and Jacobs began the partnership by contributing $75,000 and $25,000 in cash, respectively. Hugh was to work occasionally at the business, and Jacobs was to be employed full-time. They decided that year-end profits and losses should be assigned as follows: Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the period.

A compensation allowance of $7,000 was to go to Hugh with a $15,000 amount assigned to Jacobs.

Any remaining income would be split on a 4:6 basis to Hugh and Jacobs, respectively. In 2020, revenues totaled $100,000, and expenses were $78,000 (not including the partners' compensation allowance). Hugh withdrew cash of $5,000 during the year, and Jacobs took out $10,000. In addition, the business paid $6,000 for repairs made to Hugh's home and charged it to repair expense. On January 1, 2021, the partnership sold a 30 percent interest to Thomas for $63,000 cash. This money was contributed to the business with the bonus method used for accounting purposes.

Required - Answer the following questions:

What journal entries should the partnership have recorded on December 31, 2020?

What journal entry should the partnership have recorded on January 1, 2021?