Question

DJ and AM Co. reports net loss of $35,000. The partnership agreement provides for annual salaries of $15,000 for DJ and $20,000 for AM and interest allowances of $2,500 to DJ and $3,500 to AM.   Any remaining income or loss is to be shared 7:3 for DJ and AM respectively.
Instructions
a. Compute the amount of net income/loss distributed to each partner at year end.
b. Prepare the necessary closing entries at year-end.

Answer 1

	DJ	AM
Salary	$   15,000	$   20,000
Interest allowances	$     2,500	$     3,500
Total	$   17,500	$   23,500
Net Loss (7:3)	$ -24,500	$ -10,500
Net Income (loss)	$   -7,000	$   13,000
Accounts Titles and Explanation	Debit	Credit
DJ	$     7,000
Profit and loss appropriation		$     7,000
(Being Net income (loss) recorded)
Profit and loss appropriation	$   13,000
AM		$   13,000
(Being Net income (loss) recorded)