On January 1, 2021, the capital balances in the A&R Partnership are as follows: Khurram Ali ..............................

Question:

On January 1, 2021, 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 2021.


Instructions

Prepare closing entries to allocate the partnership profit under the following situations:

a. In 2021, the partnership reports profit of $170,500. There is no partnership agreement.

b. In 2021, the partnership reports profit of $170,500. The income ratio provides for salary allowances of $82,000 to Ali and $33,000 to Ramsey and the remainder to be shared equally.

c. In 2021, 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.

Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Accounting Principles Volume 2

ISBN: 978-1119502555

8th Canadian Edition

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

Question Posted: