Gigi and Bella formed a partnership on 1 July 2018 with initial capital balances of $400 000 and $440 000 respectively. For the year ended 30 June 2019, the Profit or Loss Summary account disclosed a final credit balance of $360 000.

Required:

a) Prepare the closing entry to transfer the profit disclosed in the Profit or Loss Summary account to the Profit Distribution account under method 1 (variable capital) and method 2 (fixed capital). (5 marks)

b) Prepare the closing general journal entry to distribute the profit to Gigi and Bella assuming they have both agreed to share profits in the ratio 3:5 under both method 1 (variable capital) and method 2 (fixed capital). (5 marks)

Marks will be deducted if no workings are shown.

[Answer here]

Variable Capital Balances Fixed Capital Balances

	Debit	Credit	Debit	Credit

[Show workings here]