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 $55,000.
Date | Particulars | Debit ($) | 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 |
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