Question

On 1 January 2020, Cally and Nora formed a partnership by making the following capital contributions:

Cally $130,000 in cash

Nora $190,000 in equipment

The profit of $230,000 for the year ended 31 December 2020 is to be allocated assuming a $40,000 salary to Cally and a $35,000 salary to Nora. The partners will also receive an interest allowance of 10% on their capital investments. Any remaining profit is to be shared equally.

Required:

Prepare the general journal entries to record the following:

(Explanations not required)

(a)      initial capital investments

(b)      allocation of profit to the partners

(c)      to close the partners’ Drawings accounts assuming that Cally withdrew $50,000 and Nora withdrew $55,000.

Answer 1

Date	Particulars	Debit ($)	Credit ($)
1 Jan 2020	Cash	130,000
	Equipment	190,000
	Cally's Capital		130,000
	Nora's Capital		190,000
31 Dec 2020	Profit	230,000
	Cally's Capital		114,500
	Nora's Capital		115,500
31 Dec 2020	Cally's Capital	50,000
	Nora's Capital	55,000
	Drawings		105,000

Woking Note: Calculation of allocation of profit

Particulars	Cally's Capital	Nora's Capital
Salary	40,000	35,000
Interest (10% of Capital)	13,000	19,000
Balance of Profit (equally) (230,000-107,000/2)	61,500	61,500
Total Profit	114,500	115,500