On January 1, 2024, the capital balances in the A&R Partnership are as follows: Khurram Ali ................................................
Question:
On January 1, 2024, the capital balances in the A&R Partnership are as follows:
Khurram Ali ................................................ $53,500
Pradjot Ramsey ....................................... $44,000
Neither partner had any drawings in 2024.
Instructions
Prepare closing entries to allocate the partnership profit under the following situations:
a. In 2024, the partnership reports profit of $170,500. There is no partnership agreement.
b. In 2024, the partnership reports profit of $170,500. The profit and loss ratio provides for salary allowances of $82,000 to Ali and $33,000 to Ramsey and the remainder to be shared equally.
c. In 2024, the partnership reports profit of $90,000. Assume the partnership agreement calls for income to be divided with a salary of $60,000 to Ali and $55,000 to Ramsey. Ali is allowed 5% of interest on his beginning capital, and the remainder is divided 65%–35%.
Taking It Further
Ali and Ramsey decided to form a partnership and operate a business together. Ali is much more cautious and concerned about keeping expenses to a minimum than Ramsey. Ali also has significantly more personal assets than Ramsey. Should Ali have any concerns about using the partnership form of business organization to operate this business? Explain.
Step by Step Answer:
Accounting Principles Volume 2
ISBN: 9781119786634
9th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak