Question

After closing the revenue and expense accounts, the profit for the year ending December 31, 2017 of the Mo & Molly partnership is $129,000. The partnership agreement specifies that profits and losses will be shared using the following formula.

1. Allocate salary allowances of $24,000 to Mo and $30,000 to Molly.
2. Remaining profit (loss) is to be shared on a ratio of 2:1.

At the beginning of the year, Mo’s capital account had a balance of $45,000 and Molly’s capital account had a balance of $26,000. Mo withdrew $1,400 cash per month while Molly withdrew $2,800 per month from the partnership.

Prepare a schedule to show how the profit will be allocated to the two partners.
Prepare a statement of partners’ equity for the year.

Answer 1

Distribution of partnership profit
	MO	Molly		Total
Beginning cash balance	$    45,000	$   26,000		$   71,000
Less: Drawings	$ (16,800)	$ (33,600)		$ (50,400)
Capital Before Distribution of profit	$    28,200	$   (7,600)		$   20,600
Net Profit				$   61,000
Salary	$    24,000	$   30,000		$ (54,000)
Profit left for Distribution	$       4,667	$     2,333		$      7,000
Ending Balance of capital	$    56,867	$   24,733		$   81,600

Leave a comment if answer does not match

Statement of partner's equity
	MO	Molly
Beginning cash balance	$    45,000	$   26,000
Add: Salary Allowance	$    24,000	$   30,000
Add: Income share	$       4,667	$     2,333
Balance vefire drawings	$    73,667	$   58,333
Less: Drawings	$ (16,800)	$ (33,600)
Ending cash balance	$    56,867	$   24,733