Question

Hi I have question how we get answer of part C?

Please explain breifly thanks.

Problem 11-6A Partnership entries, profit allocation, admission of a partner LO2, 3, 4 On June 1, 2020, Jill Bow and Aisha Adams formed a partnership to open a gluten-free commercial bakery, contributing $296,000 cash and $392,000 of equipment, respectively. The partnership also assumed responsibility for a $56,000 note payable associated with the equipment. The partners agreed to share profits as follows: Bow is to receive an annual salary allowance of $166,000, both are to receive an annual interest allowance of 5% of their original capital investments, and any remaining profit or loss is to be shared 40/60 (to Bow and Adams, respectively). On November 20, 2020, Adams withdrew cash of $116,000. At year-end, May 31, 2021, the Income Summary account had a credit balance of $540,000. On June 1, 2021, Peter Williams invested $136,000 and was admitted to the partnership for a 20% interest in equity.

c. May 31, 2021

Answer 1

Calculation of sharing of Profit and loss :-

Particulars	Jill Bow's Profit	Aisha Adam's Profit
Annual Salary Allowance	$166000	-
Annual Interest allowance (5% of original Capital)	($296000*5%)=$14800	($392000*5%)=$19600
Balance Profit Share in Profit sharing Ratio(40 : 60)	($339600*40%)=$135840	($339600*60%)=$203760
Total Profit of Partners	$316640	$223360

Balance Profit = Total Profit - Annual Salary allowance - Annual Interest Allowance

= $540000 - $166000 - $14800 - $19600

= $339600

Journal Entry:-

Date	Particulars	Debit($)	Credit($)
May 31, 2021	Income Summary A/c	540000
	Jill Bow's Capital A/c		316640
	Aisha Adam's Capital A/c		223360
	(Being record Profit sharing between Both Partners)