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.

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Related Book For  book-img-for-question

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

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