Question

Emma,  Ester and Evan formed a partnership last year.  Emma invested $150,000, Evan $50,000 and Ester $200,000.  Emma has taken on the role of store manager while Ester will work only three quarters of the time to allow her to complete her education in nursing and Evan has his own law firm and will not be an active partner in this business.  

Net Income for the year is $130,000.  The partnership agreement states that Emma will receive a salary of $40,000 and Ester will get $10,000.  All partners will receive 5% interest on their original invested capital.  Any remaining amounts will be split in a 2/1/1 ratio.  Prepare a schedule to compute the amount each partner will get from the profits and prepare a journal entry.

SCHEDULE:

	Emma	Ester	Evan	Total
Salary	40,000	10,000	0	50,000
Interested on Capital	7,500	3,500	10,000	21,000
Share of Profit	29,500	14,750	14,750	59,000
TOTAL	77,000	28,250	24,750	130,000

Journal Entry:

Dec 31		Debit	Credit

Answer 1

Allocation of profits
			Emma	Ester	Evan	Total
Net Income						130000
Salary of Partners			40000	10000	0	-50000
Remaining income						80000
Interest on interest			7500	10000	2500	-20000
Remaining income						60000
Net Profit share			30000	15000	15000	-60000
Share of income			77500	35000	17500	0
Journal entry:
Income summary Dr.			130000
Emma Capital account				77500
Ester capital Account				35000
Evan capital account				17500