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 buthas a market value of $200,000.
Required:
- Prepare the necessary journal entries to set up the partnershipon 1 July 2016.
The partnership of Colin and Jane has been in operation for onemonth 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 thepartners’ 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:
- Calculate the amount of profit allocated to each partnershowing all workings.
- Prepare the general journal entries to allocate the profit forthe month to each of the partners.
