Question

After closing the revenue and expense accounts, the profit for the year ended December 31, 2021 of the Mitt & Ryan partnership is $25,800. The partnership agreement specifies that profits and losses will be shared using the following formula.

1.		Allocate profit by a 5% interest allowance on the partners’ beginning capital balances.
2.		Allocate salary allowances of $18,582 to Mitt and $13,282 to Ryan.
3.		Remaining profit (loss) is to be shared on a ratio of 8:5.

At the beginning of the year, Mitt's capital account had a balance of $30,900 and Ryan's capital account had a balance of $33,200. Mitt withdrew $1,070 cash per month while Ryan withdrew $1,270 per month from the partnership. During the year, Mitt made an additional investment of $5,200 cash into the partnership.

Prepare a schedule to show how the profit or loss will be allocated to the two partners. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

MITT & RYAN Division of Profit Year Ended December 31, 2021
		Mitt			Ryan			Total
Profit		$			$			$
Interest allowance
Mitt
Ryan
Total
Profit remaining for allocation
Salary allowance
Mitt
Ryan
Total
Profit (deficiency) remaining for allocation
Fixed ratio
Mitt
Ryan
Total
Profit remaining for allocation
Profit allocated to the partners		$			$			$

Prepare a statement of partners' equity for the year. (List items that increase partner's equity first.)

MITT & RYAN Statement of Partners’ Equity Year Ended December 31, 2021
		Mitt		Ryan		Total
Total RevenuesDrawingsInvestmentsTotal ExpensesCapital, December 31RevenuesExpensesGross Profit / (Loss)Capital, January 1Net Income / (Loss)		$		$		$
AddLess:
Gross Profit / (Loss)Total ExpensesInvestmentsTotal RevenuesCapital, December 31Capital, January 1Net Income / (Loss)RevenuesDrawingsExpenses
InvestmentsRevenuesTotal ExpensesCapital, December 31Net Income / (Loss)Capital, January 1ExpensesDrawingsTotal RevenuesGross Profit / (Loss)
AddLess: ExpensesGross Profit / (Loss)Net Income / (Loss)Total RevenuesCapital, January 1Total ExpensesRevenuesInvestmentsCapital, December 31Drawings
ExpensesTotal ExpensesCapital, January 1DrawingsTotal RevenuesGross Profit / (Loss)InvestmentsCapital, December 31RevenuesNet Income / (Loss)		$		$		$

Prepare the remaining closing entries on December 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2021	Ryan, CapitalRyan, DrawingsIncome SummaryCashMitt, Capital
	Ryan, DrawingsMitt, CapitalRyan, CapitalCashIncome Summary
	Income SummaryRyan, CapitalCashRyan, DrawingsMitt, Capital
	(To close profit/loss to capital accounts)
Dec. 31, 2021	Mitt, CapitalIncome SummaryRyan, CapitalRyan, DrawingsMitt, Drawings
	Income SummaryRyan, CapitalMitt, CapitalMitt, DrawingsRyan, Drawings
	Mitt, DrawingsMitt, CapitalRyan, CapitalRyan, DrawingsIncome Summary
	Mitt, CapitalRyan, CapitalRyan, DrawingsIncome SummaryMitt, Drawings
	(To close drawings account of partners)

Answer 1

	Division of profit:
					Mitt	Ryan	Total
	Profit						25800
	Interest allowance			a	1545	1660	3205
	(beginning capital balances*5%)				(30900*5%)	(33200*5%)
	Profit remaining for allocation						22595
	Salary allowance			b	18582	13282	31864
	Profit (deficiency) remaining for allocation						-9269
	Fixed ratio				8	5
				c	-5704	-3565	-9269
					(9269*8/13)	(9269*5/13)
	Profit allocated to the partners			a+b+c	14423	11377	25800
		Statement of partners' equity
					Mitt	Ryan
	Capital,January 1				30900	33200
	Add:
	Investments				5200
	Net income				14423	11377
					50523	44577
	Less:
	Drawings				1070	1270
	Capital, December 31				49453	43307
	Closiing entries:
	Date	Account Titles and Explanation				Debit	Credit
	Dec. 31, 2021	Income Summary				25800
		Mitt, Capital					14423
		Ryan, Capital					11377
		(To close profit/loss to capital accounts)
	Dec. 31, 2021	Mitt, Capital				1070
		Ryan, Capital				1270
		Mitt, Drawings					1070
		Ryan, Drawings					1270
		(To close drawings account of partners)