Warren and Winston’s partnership had a final profit for the year of $40 500. When the partnership was formed at the beginning of the year Warren invested $150 000 and Winston invested $100 000.

Required
A.    Prepare the journal entries to record the allocation of profit under each of the following assumptions, using method 1 procedures:

    1.    Warren and Winston agree to a 55:45 sharing of profits.

    2.    The partners agree to share profits in the ratio of their original capital investments.

    3.    The partners agree to recognise $12 000 per year salary allowance to Warren and a $4500 per year salary allowance to Winston. Each partner is entitled to 6% interest on his original investment, and any remaining profit is be shared equally.

B.    Repeat requirement A.3 above assuming the partnership has a profit of $27 000 for the first year.