Question:

Terry Lam and Chris Tan have a partnership agreement with the following provisions for sharing profit or loss:

1)A salary allowance of $20,000 to Lam and $30,000 to Tan

2)An Interest allowance of 5% on capital balances at the beginning of the year

3)The remainder to be divided between Lam and Tan on a 3:4 basis

The capital balances on February 1, 2020, for T. Lam and C. Tan were $100,000 and 120,000 respectively. For the year ended January 31, 2021, the partnership reported a loss of $30,000. The partnership also reported the following: T. Lam drawings of $12,000 and C. Tan drawings of $14,400.

Instructions:

a.Create a schedule to show how the profit or loss is allocated to the two partners.

b. Create a statement of partners equity for the year.

c.Prepare closing entries on January 31, 2021, to allocate the partnership profit and to close the drawings accounts.