PARTNERSHIP

ACCOUNTING
1 st tutorial
• Division of Income
The partnership agreement of Angela and Dawn has the following
provisions:
1. The partners are to earn 10 percent on the average capital.
2. Angela and Dawn are to earn salaries of $25,000 and $15,000,
respectively.
3. Any remaining income or loss is to be divided between Angela
and Dawn using a 70:30 ratio.
Angela’s average capital is $50,000 and Dawn’s is $30,000.
1. Angela Interest on average capital will be:
1. 2000
2. 3000
3. 5000
4. Nothing correct

2. Dawn Interest on average capital will be:

1. 2000
2. 3000
3. 5000
4. Nothing correct
3. Angela salary will be
1. 5000
2. 10000
3. 15000
4. 25000

4. Dawn salary will be:

1. 5000
2. 10000
3. 15000
4. 25000
3. Angela share from the residual income will be:
1. 9400
2. 9600
3. 22600
4. 22400

4. Dawn share from the residual income will be:

1. 9400
2. 9600
3. 22600
4. 22400
Distribution of $80,000 income:
Angela Dawn Total
Profit percentage 70% 30% 100%
Average capital $ 50,000 $ 30,000

Net income $ 80,000

Interest on average capital (10%) $ 5,000 $3,000 (8,000)
Salary 25,000 15,000 (40,000)

Residual income $32,000

Allocate ( 70%:30%) 22,400 9,600 (32,000)

Total $52,400 $ 27,600 $-0
• Division of Income—Interest on Capital Balances
Left and Right are partners. Their capital accounts during 20X1 were as
follows:

Partnership net income is $50,000 for the year. The partnership agreement
provides for the division of income as follows:
1. Each partner is to be credited 8 percent interest on his or her average
capital (calculated after rounding to the nearest number of whole
months)
2. Any remaining income or loss is to be divided equally.

•
1. The average capital for left:
1. 25000
2. 30000
3. 35000
4. 40000

2. The average capital for right:

1. 50000
2. 47500
3. 47400
4. Nothing correct.
 Average capital for Left

Months x
Months
Date Debit Credit Balance Dollar
Maintained
Balance
3 $ 90,000
1/1 $30,000

190,000
4/3 $8,000 38,000 5

8/23 $6,000 32,000 2 64,000

10/31 6,000 38,000 2 76,000

Total 12 $420,000

Average capital $ 35,000

($420,000 / 12 months)
 Average capital for Right
Months x
Months
Date Debit Credit Balance Dollar
Maintained
Balance
2 $100,000
1/1 $50,000

3/5 $9,000 41,000 4 164,000

7/6 $7,000 48,000 3 144,000
10/7 5,000 53,000 3 159,000
Total 12 $567,000
Average capital $ 47,250
($567,000 / 12 months)
1. Left Interest on average capital will be:
1. 2800
2. 3700
3. 3780
4. Nothing correct.
2. Right Interest on average capital will be:
1. 2800
2. 3700
3. 3780
4. Nothing correct.
1. Left residual share from net income:
1. 20700
2. 21710
3. 22720
4. Nothing correct.

2. Right residual share from net income :

1. 20700
2. 21720
3. 22720
4. Nothing correct.
Distribution of $50,000 income:

Left Right Total

Profit percentage 50% 50% 100%
Average capital $35,000 $47,250

Net income $ 50,000

Interest on average
$ 2,800 $ 3,780 (6,580)
capital (8%)
Residual income $ 43,420

Allocate 50%:50% 21,710 21,710 (43,420)

Total $24,510 $25,490 $ -0-