Fatima, Nouf, and Zainab have the following capital balances; $50,000, $72,000 and $95,000 respectively at the...

Fatima, Nouf, and Zainab have the following capital balances; $50,000, $72,000 and $95,000 respectively at the beginning of 2018. Because of a cash shortage Fatima invests an additional $15,000 on May 1st, 2018. Each partner withdraws $1,200 per month. Fatima, Nouf, and Zainab receive a salary of $12,000, $14,000 and $18,000 respectively, for work done during the year. Each partner receives interest of 8% on that partner’s beginning capital balance without regard to normal drawings. Any remaining profits are split 25%, 35%, and 40% respectively. The net income for 2018 is $40,000.

Required:

a. Allocate the $40,000 income among the partners. Show your working.

b. Determine the ending capital balances for each partner at December 31st, 2018. Show your workings.

c. Record the journal entry for the distribution of net income.

Expert Solution



			Amount in $
1		NET INCOME OF FIRM FOR 2018	40000
		LESS INTEREST ON CAPITAL FATHIMA 4000 NOUF 5760 ZAINAB 7600 LESS SALARY FATHIMA 12000 NOUF 14000 ZAINAB 18000 BALANCE OF PROFIT [21360]
		DISTRBUTED AMONG PARTNERS AS
		FATHIMA @25%	[5340]
		NOUF @35%	[7476]
		ZAINAB @40%	[8544]
			[21360]

2		CAPITAL BALANCES

		FATHIMA
	2018	Begning	50000
	May-18	ADD; Additional capital	15000
		ADD; Interest on capital	4000
		[50000*8/100] SALARY 12000
			81000

		LESS; Drawings[1200*12] 14400
		LESS SHARE OF LOSS 5340
		Capital at end	61260


		NOUF
	2018	Begning	72000
		ADD; Interest on capital 5760 ADD SALARY 14000


			91760

		LESS; Drawings[1200*12] 14400
		LESS SHARE OF LOSS 7476
		Capital at end	69884



		ZAINAB
	2018	Begning	95000
		ADD; Interest on capital
		[95000*8/100]	7600
		ADD SALARY 18000
			121600

		LESS; Drawings[1200*12]	14400
		LESS SHARE OF LOSS 8544
			98656


3
		journal	Amount in $
	date	Particulars	Debit	Credit
		FATHIMA CAPITAL ACCOUNT	5340
	Dec-18	NOUF CAPITALACCOUNT	7476
		ZAINAB CAPITAL ACCOUNT	8544
		TO PROFIT AND LOSS APPROPRIATION ACCOUNT		21360

		[Being net loss distributed among
		partners]

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