Q2.. The partnership of Sultan and Youssef has the following provisions: Sultan

ID: 2595397 • Letter: Q

Question

Q2.. 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 ratio, 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

Sultan

Youssef

Salary

30,000

20,000

Interest

5,000

13,000

Total Salary and Interest

35,000

33,000

Remaining Income

22,200

(3/5*37,000)

14,800

(2/5*37,000)

Total Division

68,400

51,600

Remaining Income = Total Income – Salary – Interest

= 105,000 – (30,000+20,000) – (5,000+13000)

= 37,000

We can do a separate journal entry for each of salary, interest and remaining income share or we can do one entry as we already calculated the total share.

Net income (Dr.) 50,000

Sultan Capital (Cr.) 30,000

Youssef Capital (Cr.) 20,000

(Being salary distributed)

Net income (Dr.) 18,000

Sultan Capital (Cr.) 5,000

Youssef Capital (Cr.) 13,000

(Being Interest distributed)

Net income (Dr.) 37,000

Sultan Capital (Cr.) 22,200

Youssef Capital (Cr.) 14,800

(Being remaining profit distributed)