The partnership of Sultan and Youssef has the following provisions: Sultan and Y
ID: 2591540 • Letter: T
Question
The partnership of Sultan and Youssef has the following provisions:
Sultan and Youssef receive salary allowances of $30,000 and $20,000, respectively.
Interest is imputed at 10% on the average capital investment.
Any remaining profit or loss is shared between Sultan and Youssef in a 3:2 ratios, respectively.
Average Capital investments: Sultan, $ 50,000; Youssef, 130,000
A-Prepare a schedule showing how the profit would be divided, assuming the partnership profit or loss is: $ 105,000
B-What journal entry should be made to allocate the profit or loss?
Explanation / Answer
(A).
Sultan
Youssef
Total
Total net profit
$105000
Salary
$30000
$20000
($50000)
Interest on capital @10%
$5000
$13000
($18000)
Total net profit after salary and interest on capital
$37000
Amount to be distributed in the ratio of (3:2)
$22200
$14800
($37000)
Total
$57200
$47800
(B).
Journal entries will be made as follows;
Date
Accounts Title & Explanation
Debit
Credit
Income Summery
$50000
Salary to Sultan
$30000
Salary to Youssef
$20000
(For recording salary of the partners)
Income Summery
$18000
Sultan, Capital
$5000
Youssef, Capital
$13000
(For recording interest on the capital of the partners)
Income Summery
$37000
Sultan, Capital
$22200
Youssef, Capital
$14800
(For recording balance profits in the ratio of 3:2)
Sultan
Youssef
Total
Total net profit
$105000
Salary
$30000
$20000
($50000)
Interest on capital @10%
$5000
$13000
($18000)
Total net profit after salary and interest on capital
$37000
Amount to be distributed in the ratio of (3:2)
$22200
$14800
($37000)
Total
$57200
$47800
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