On January 1, 2003, Reed and Bailey established a partnership to sell fruit.
a. Reed invested $42,000 cash in the partnership, and Bailey invested $20,000 cash and a building valued at $25,000.
b. Reed invested another $6,000 cash. Bailey donated a truck valued at $7,000.
c. Reed withdrew $11,000 cash, and Bailey withdrew $6,300 cash.
d. A fire destroyed half of the building donated by Bailey. There was no insurance on the building. The partners share profits and losses equally.
e. Reed and Bailey agree to admit a third partner on March 1 of the next year. This partner, Kiefer, promises to invest $50,000 cash.
Required
1. Journalize the transactions.
2. Journalize the closing entries. Assume revenues totaled $50,000 and expenses totaled $31,000.
3. Compute each partner s capital balance at the end of 2003.
4. Interpretive Question: What is the relationship between the amount of capital contributed by each owner and the way profits are to be allocated?