P15-1. Day and Night formed an accounting partnership in 2008. Capital transacti
ID: 2424562 • Letter: P
Question
P15-1. Day and Night formed an accounting partnership in 2008. Capital transactions for Day and Night during 2008 are as follows:
Date Transaction Amount
Day
1/1 Beginning balance $75,000
4/1 Withdrawal 18,750
6/1 Investment 3 7,500
11/1 Investment 18,750
Night
1/1 Beginning balance $37,500
7/1 Investment 18,750
10/1 Withdrawal 9,375
Partnership net income for the year ended December 31, 2008; is $68,400 before considering salaries or interest.
Required:
Determine the amount of profit that is to be allocated to Day and Night in accordance with each of the following independent profit-sharing agreements:
1. Day and Night failed to provide a profit-sharing arrangement in the articles of partnership and fail to compromise on an agreement.
2. Net income is to be allocated 60% to Day and 40% to Night.
3. Net income is to be allocated in the ratio of ending capital balances.
4. Net income is to be allocated in the ratio of average capital balances.
5. Interest of 15% is to be granted on average capital balances, salaries of $15,000 and $8,250 are to be allocated to Day and Night, respectively, and the remainder is to be divided equally.
Explanation / Answer
The correct answer is 5. Interest of 15% is to be granted on average capital balances, salaries of $ 15,000 and $ 8,250 are to be allocated to Day and Night respectively, and the remainder is to be divided equally.
In the absence of profit sharing arrangements specified in the articles of partnership, residual profits are to be divided equally.
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