Scribd
Upload
326 views4 pages

Profit Sharing ASSIGNMENT

The document contains 6 problems related to partnership profit and loss sharing agreements. The problems require calculating partner distributions and capital account allocations based on terms like salaries, bonuses, interest on capital balances, and residual profit/loss ratios. They also involve correcting entries to properly allocate prepaid insurance and equipment purchases between partner capital accounts.

Uploaded by

Roldan Azuelo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
326 views4 pages

Profit Sharing ASSIGNMENT

The document contains 6 problems related to partnership profit and loss sharing agreements. The problems require calculating partner distributions and capital account allocations based on terms like salaries, bonuses, interest on capital balances, and residual profit/loss ratios. They also involve correcting entries to properly allocate prepaid insurance and equipment purchases between partner capital accounts.

Uploaded by

Roldan Azuelo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Bello, Karen Joy S.

BS-Accountancy, 3rd Year

EXERCISES ON PROFIT SHARING

1) On February 1, 2014, George, Hamm, and Ishmael began a partnership in which George
and Ishmael each contributed cash of $25,000; and Hamm contributed property with a fair
value of $50,000 and a tax basis $40,000. Hamm receives a 5% bonus of partnership income.
George and Ishmael receive salaries of $10,000 each. The partnership agreement of George,
Hamm, and Ishmael provides that all partners receive 5% interest on capital, and that profits
and losses of the remaining income be distributed to George, Hamm, and Ishmael by a 1:3:1
ratio.
Required:
Prepare a schedule to distribute $25,000 of partnership net income to the partners.

George Hamm Ishmael Total


Salary 10,000 10,000 20,000
1:3:1 1,000 3,000 1,000 5,000
Total 11,000 3,000 11,000 25,000

Journal Entry
Income Summary 25,000
George, Capital 11,000
Hamm, Capita 3,000
Ishmael, Capital 11,000

2) On July 1, 2014, Joe, Kline, and Lama began a partnership in which Joe and Kline each
contributed cash of $200,000; and Lama contributed property with a fair value of $100,000
and a tax basis $150,000. Joe receives a 10% bonus of partnership income. Kline and Lama
receive salaries of $40,000 each. The partnership agreement of Joe, Kline, and Lama provides
that all partners receive 5% interest on capital and that profits and losses of the remaining
income be distributed to Joe, Kline, and Lama by a 1:1:3 ratio.

Required:
Prepare a schedule to distribute $225,000 of partnership net income to the partners.
Answer:
Capital:
Joe: $200,000
Kline: $200,000
Lama: fair value of $100,000 and a tax basis $150,000.

Income Joe Kline Lama


Net income $225,000
Bonus to Joe *(22,500) $22,500
Salaries (80,000) $40,000 $40,000
Interest *(25,000) 10,000 10,000 5,000
Residual profit 97,500
Profit allocation*(97,500) $19,500 19,500 58,500
Allocation $0 $52,000 $69,500 $ 103,500

* Bonus to Joe: 10% X 225,000 = 22,500


* 200,000 X 5% Each, Lama: 100,000 X 5%
* 1:1:3---
Joe- 1/5 X 97,500 = 19,500; Kline- 1/5 X 97,500= 19,500 Lama-3/5 X 97,500 =
58,500
3) The profit and loss sharing agreement for the Tuttle, Upman, and Veer partnership
provides for residual profits and losses to be allocated 2:3:6 to Tuttle, Upman, and
Veer, respectively. In 2014, the partnership recorded $11,000 of net income that was
properly allocated to the partners' capital accounts. On January 18, 2015, after the
books were closed for 2014, Tuttle discovered that the $16,500 payment for the
partnership's liability and workers compensation insurance for 2015 was recorded as
insurance expense when it was paid on December 28, 2014.

Required:
Prepare the necessary correcting entry(s) for the partnership.

Date Accounts Title & Description Debit Credit


$16,500.0
18-Jan Prepaid Expense A/c
0
Tuttle's Capital A/c ($16,500 * 2/11) $3,000.00
Upman's Capital A/c ($16,500 * 3/11) $4,500.00
Veer's Capital A/c ($16,500 * 6/11) $9,000.00

4) Xavier, Young, and Zane operate a partnership with a complex profit and loss
sharing agreement. The average capital balance for each partner on December 31,
2014 is $300,000 for Xavier, $250,000 for Young, and $325,000 for Zane. An 8%
interest allocation is provided to each partner based on the average capital balance on
December 31, 2014. Xavier and Young receive salary allocations of $10,000 and
$15,000, respectively. If partnership net income is above $25,000, after the salary
allocations are considered (but before the interest allocations are considered), Zane
will receive a bonus of 10% of the original amount of net income. All residual income
is allocated in the ratios of 2:3:5 to Xavier, Young, and Zane, respectively.

Required:
1. Prepare a schedule to allocate income to the partners assuming that partnership net
income for 2014 is $250,000.
2. Prepare a journal entry to distribute the partnership's income to the partners (assume that
an Income Summary account is used by the partnership).

Xavier Young Zane Total


8% Interest 24,000 20,000 26,000 70,000
Salary 10,000 15,000 25,000
Bonus 25,000 25,000
Subtotal 34,000 35,000 51,000 120,000
Residual Allocation 26,000 39,000 65,000 130,000
Total 60,000 74,000 116,000 250,000
Computation:
Interest
Xavier 300,000 x .08 = 24,000
Young 250,000 x .08 = 20,000
Zane 325,000 x .08 = 26,000

Bonus
Zane 250,000 x .10 = 25,000

Allocation of Residual Income


Xavier 130,000 x 2/10 = 26,000
Young 130,000 x 3/10 = 39,000
Zane 130,000 x 5/10 = 65,000

Entry Debit Credit


Income Summary 70,000
Xavier, Capital 24,000
Young, Capital 20,000
Zane, Capital 26,000

Income Summary 25,000


Xavier, Capital 10,000
Young, Capital 15,000

Income Summary 25,000


Zane, Capital 25,000

Income Summary 130,000


Xavier, Capital 26,000
Young, Capital 39,000
Zane, Capital 65,000

5) The profit and loss sharing agreement for the Mason, Nell, and Odell partnership provides
for a $15,000 salary allowance to Nell. Residual profits and losses are allocated 5:3:2 to
Mason, Nell, and Odell, respectively. In 2013, the partnership recorded $120,000 of net
income that was properly allocated to the partners' capital accounts. On January 25, 2014,
after the books were closed for 2013, Mason discovered that office equipment, purchased for
$12,000 on December 29, 2013, was recorded as office expense by the company bookkeeper.

Required:
Prepare the necessary correcting entry(s) for the partnership.

Date Accounts Title & Description Debit Credit


25-Jan Office Equipment A/c $12,000.00
Mason's Capital A/c ($12,000 * 5/10) $6,000.00
Nell's Capital A/c ($12,000 * 3/10) $3,600.00
Odell's Capital A/c ($12,000 * 2/10) $2,400.00
6) The profit and loss sharing agreement for the Tuttle, Upman, and Veer partnership
provides for residual profits and losses to be allocated 2:3:6 to Tuttle, Upman, and Veer,
respectively. In 2014, the partnership recorded $11,000 of net income that was properly
allocated to the partners' capital accounts. On January 18, 2015, after the books were closed
for 2014, Tuttle discovered that the $16,500 payment for the partnership's liability and
workers compensation insurance for 2015 was recorded as insurance expense when it was
paid on December 28, 2014.

Required:
Prepare the necessary correcting entry(s) for the partnership.

Date Accounts Title & Description Debit Credit


18-Jan Prepaid Expense A/c $16,500.00
Tuttle's Capital A/c ($16,500 * 2/11) $3,000.00
Upman's Capital A/c ($16,500 * 3/11) $4,500.00
Veer's Capital A/c ($16,500 * 6/11) $9,000.00

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy