Question

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

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.

Homework Answers

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
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