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QUESTION 22 Colin and Jane form a partnership on 1 July 2016. Colin’s contribution is $20,000...

QUESTION 22

Colin and Jane form a partnership on 1 July 2016.

Colin’s contribution is $20,000 cash and $80,000 inventory. Jane’s contribution is $16,000 cash and land that cost $125,000 but has a market value of $200,000.

Required:

  1. Prepare the necessary journal entries to set up the partnership on 1 July 2016.

The partnership of Colin and Jane has been in operation for one month and they have made a net profit of $23,000.

The partnership agreement provides for the following:

  • An interest allowance of 5% of their capital balances.

(There has been no change in the partners’ capital balance since the partnership was set up).

  • Salaries of $2,300 for Colin and $1,900 for Jane.
  • Residual profits are to be divided equally.

Required:

  1. Calculate the amount of profit allocated to each partner showing all workings.
  1. Prepare the general journal entries to allocate the profit for the month to each of the partners.

Solutions

Expert Solution


ekkarill92 answered 5 months ago
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