Question 2

Fay Brown and Lynette King are in partnership trading as Faylyn Enterprise Ltd. On January 1, 2015 the following balances were extracted from the books of the partnership:

Current Account Capital Account

Fay $480,000 (Cr) $2,000,000

Lynette $270,000 (Dr) $1,000,000

The following additional information was also presented to you the financial accountant of the company:

Profits are to be shared in the ratio of the balances on the partners capital accounts on January 1, 2015.

Interest on drawings is to be charged at 5% per annum, while partners are to receive 4% per annum on their capitals.

The net operating profit for the financial year amounted to $2,950,000.

Partners are to receive salaries as follows: Fay $500,000 per annum; and Lynette $400,000 per annum.

Cash drawings for the year were: Fay $450,000 and Lynette $550,000.

Required:

The partners capital accounts as at December 31,2015.

The partners current accounts as at December 31, 2015.

The Profit and Loss Appropriation Account for the period ending December 31, 2015.