Question
After closing the revenue and expense accounts, the profit for the year ended December 31, 2021 of the Mitt & Ryan partnership is $25,800. The
After closing the revenue and expense accounts, the profit for the year ended December 31, 2021 of the Mitt & Ryan partnership is $25,800. The partnership agreement specifies that profits and losses will be shared using the following formula.
| 1. | Allocate profit by a 5% interest allowance on the partners beginning capital balances. | |
| 2. | Allocate salary allowances of $18,582 to Mitt and $13,282 to Ryan. | |
| 3. | Remaining profit (loss) is to be shared on a ratio of 8:5. |
At the beginning of the year, Mitt's capital account had a balance of $30,900 and Ryan's capital account had a balance of $33,200. Mitt withdrew $1,070 cash per month while Ryan withdrew $1,270 per month from the partnership. During the year, Mitt made an additional investment of $5,200 cash into the partnership.
Prepare a schedule to show how the profit or loss will be allocated to the two partners. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
| MITT & RYAN Division of Profit Year Ended December 31, 2021 | |||||||||
| Mitt | Ryan | Total | |||||||
| Profit | $ | $ | $ | ||||||
| Interest allowance | |||||||||
| Mitt | |||||||||
| Ryan | |||||||||
| Total | |||||||||
| Profit remaining for allocation | |||||||||
| Salary allowance | |||||||||
| Mitt | |||||||||
| Ryan | |||||||||
| Total | |||||||||
| Profit (deficiency) remaining for allocation | |||||||||
| Fixed ratio | |||||||||
| Mitt | |||||||||
| Ryan | |||||||||
| Total | |||||||||
| Profit remaining for allocation | |||||||||
| Profit allocated to the partners | $ | $ | $ | ||||||
Prepare a statement of partners' equity for the year. (List items that increase partner's equity first.)
| MITT & RYAN Statement of Partners Equity Year Ended December 31, 2021 | ||||||
| Mitt | Ryan | Total | ||||
| Total RevenuesDrawingsInvestmentsTotal ExpensesCapital, December 31RevenuesExpensesGross Profit / (Loss)Capital, January 1Net Income / (Loss) | $ | $ | $ | |||
| AddLess: | ||||||
| Gross Profit / (Loss)Total ExpensesInvestmentsTotal RevenuesCapital, December 31Capital, January 1Net Income / (Loss)RevenuesDrawingsExpenses | ||||||
| InvestmentsRevenuesTotal ExpensesCapital, December 31Net Income / (Loss)Capital, January 1ExpensesDrawingsTotal RevenuesGross Profit / (Loss) | ||||||
| AddLess: ExpensesGross Profit / (Loss)Net Income / (Loss)Total RevenuesCapital, January 1Total ExpensesRevenuesInvestmentsCapital, December 31Drawings | ||||||
| ExpensesTotal ExpensesCapital, January 1DrawingsTotal RevenuesGross Profit / (Loss)InvestmentsCapital, December 31RevenuesNet Income / (Loss) | $ | $ | $ | |||
Prepare the remaining closing entries on December 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
| Date | Account Titles and Explanation | Debit | Credit |
| Dec. 31, 2021 | Ryan, CapitalRyan, DrawingsIncome SummaryCashMitt, Capital | ||
| Ryan, DrawingsMitt, CapitalRyan, CapitalCashIncome Summary | |||
| Income SummaryRyan, CapitalCashRyan, DrawingsMitt, Capital | |||
| (To close profit/loss to capital accounts) | |||
| Dec. 31, 2021 | Mitt, CapitalIncome SummaryRyan, CapitalRyan, DrawingsMitt, Drawings | ||
| Income SummaryRyan, CapitalMitt, CapitalMitt, DrawingsRyan, Drawings | |||
| Mitt, DrawingsMitt, CapitalRyan, CapitalRyan, DrawingsIncome Summary | |||
| Mitt, CapitalRyan, CapitalRyan, DrawingsIncome SummaryMitt, Drawings | |||
| (To close drawings account of partners) |
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