Chapter 11 March 8
Chapter 11 March 8
CHAPTER
11
Cash 20,000
Equipment 10,000
Thompson, capital 30,000
2014
2017
Mar. 1 Cash ........................................................................................
50,000
Len Peters, Capital ........................................................... 20,000
Beau Silver, Capital.......................................................... 30,000
To record initial capital investments.
Dividing Profit or Loss
The partnership profit or loss may be
allocated based on:
• Fractional basis
• Ratio of capital investments
• Salaries, interest allowance, and a fixed ratio
Required:
Prepare calculations showing how the profit should be allocated to the partners
under each of the following plans for sharing profit and losses:
b. The partners agreed to share profits and losses in proportion to their initial
investments.
c. The partners agreed to share profit by allowing a $140,000 per year salary
allowance to Dallas, a $70,000 per year salary allowance to Weiss, 25% interest
on their initial investments, and the balance equally.
Mini-Quiz
R, H, and D formed a partnership with R contributing
$60,000, H contributing $50,000, and D contributing
$40,000. Their partnership agreement called for the
earnings division to be based on the ratio of capital
investments. If the partnership had earnings of $74,000
for its first year of operation, what amount of earnings
(rounded) would be credited to D's capital account?