R. Huma and W. How have capital balances on July 1, 2014, of $60,000 and $55,000, respectively. The partnership profit-sharing agreement specifies (1) salary allowances of $30,000 for Huma and $22,000 for How, (2) interest at 5% on beginning capital balances, and (3) for the remaining profit or loss to be shared 60% by Huma and 40% by How.
Instructions
(a) Prepare a schedule showing the division of profit for the year ended June 30, 2015, assuming profit is
(1) $70,000, and
(2) $55,000.
(b) Journalize the allocation of profit in each of the situations in (a).