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The partnership of Tatum and Brook shares profits and losses in a 60:40 ratio respectively after Tatum receives a 10,000 salary and Brook receives a 15,000 salary. Prepare a schedule showing how the profit and loss should be divided, assuming the profit or loss for the year is: A. $40,000 B. $25,000 C. ($5,000) In addition, show the resulting entries to each partner’s capital account. Tatum’s capital account balance is $50,000 and Brook’s is $60,000.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 15, Problem 1PA
Textbook Problem
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The partnership of Tatum and Brook shares profits and losses in a 60:40 ratio respectively after Tatum receives a 10,000 salary and Brook receives a 15,000 salary. Prepare a schedule showing how the profit and loss should be divided, assuming the profit or loss for the year is:

A. $40,000

B. $25,000

C. ($5,000)

In addition, show the resulting entries to each partner’s capital account. Tatum’s capital account balance is $50,000 and Brook’s is $60,000.

To determine

Concept introduction:

Journal Entry: It helps company or any business to record the transaction in double entry system. Every transaction has two effects; one is debit and another is credit.

Partnership: Two or more persons start a business in which they share profit or loss in agreed ratio and work on behalf of each other.

To calculate:

Schedule of distribution of partners profit or loss.

Explanation of Solution

Schedule Showing distribution of profit
Particulars Case 1 Case 2 Case 3
Profit or Loss 40000 25000 -5000
Less: Salary of Both Partner 25000 25000 25000
Total Profit 15000 0 -30000
Profit of 1st partner 9000 0 -18000
Profit of 2nd partner 6000 0 -12000

Above profit are distributed in partners in ratio 60:40. In schedule, first firm calculates the net profit then distributes it in the above ratio.

Salary of partner= 10000+ 15000= 25000

Case 1

Partner's Capital Account
Particulars Tatum Brook Particulars Tatum Brook
By Bal B/d 50000 60000
By Profit & Loss 9000 6000
By Salary 10000 15000
To Bal c/d 69000 81000
69000 81000 69000 81000
Case 2

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Chapter 15 Solutions

Principles of Accounting Volume 1
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