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

ID: 2596364 • Letter: #

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 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

Answer A:

Partnership profit or loss $ 105,000. (As the amount is positive, it is assumed that, this $ 105,000 is profit).

Schedule showing distribution of Profit $ 105,000

Sultan

Youssef

Total

Salary allowances

$ 30,000

$ 20,000

$ 50,000

Interest on capital (10% on average capital invested)

$ 5,000

$ 13,000

$ 18,000

Sub Total

$3 5,000

$ 33,000

$ 68,000

Remaining profit

(105,000- 68,000)

=$ 37,000

Share in profit

3/5

= $ 37000 X 3/5

= $ 22,200

2/5

= $ 37000 X 2/5

=$ 14,800

$ 37000

Total division of profit

$ 57,200

$ 47,800

$ 105,000

Answer B

Journal entry for allocating profit or loss

S.No

Account Name

Debit ($)

Credit ($)

Income Summary

105,000

Capital Sultan

57,200

Capital Youssef

47,800

Distribution of profit or loss among partners (includes salary allowances, interest on capital and profit share)