Thomson and Turner formed a partnership by investing $110 000 and $90 000 respectively. The partnership had a net profit of $72 000 in the first year.

Required

A. Prepare the journal entries to record the allocation of profit under each of the following assumptions, using method 1:

1. Thomson and Turner agree to a 60:40 sharing of profits.

2. The partners agree to share profits in the ratio of their original capital investments.

3. The partners agree a $10 000 per year salary allowance to Thomson and a $8000 per year salary allowance to Turner. Each partner is entitled to 8% interest on original investment, and any remaining profit is to be shared equally.

B. Repeat requirement A.3 above assuming the partnership has a profit of $30 000 for the first year.

Q5 Formation and allocation of profit method 2

Richards, David and Andrews decided to enter into a partnership agreement as from 1 July 2020, some of the provisions of which were as follows.

1. Richards to contribute $20 000 cash, inventory the fair value of which was $42 500, plant and

machinery $78 600, accounts receivable totalling $12 700.

2. David to contribute $37 500 cash and act as manager for the business at an annual salary of $32 000

to be allocated to him at the end of each year.

3. Andrews to contribute $16 500 cash, land $120 000, premises $240 000, furniture and fittings $40

500, motor vehicles $31 500. A mortgage of $180 000 secured over the premises was outstanding

and the partnership agreed to assume the mortgage.

4. Profits or losses of the firm to be divided between or borne by Richards, David and Andrews in the

proportion of 2:1:3 respectively.

5. Interest to be allowed at 8% p.a. on the capital contribution by the partners. Interest at 10% p.a. to be

charged on partners drawings.

During the year ended 30 June 2021, the income of the partnership totalled $120 800, and the expenses (excluding interest on capital and drawings and Davids salary) amounted to $43 000.

Richards withdrew $12 000 on 1 October 2015 and $8000 on 1 January 2021; David withdrew $4000 only on 1 April 2021; Andrews withdrew $10 000 on 30 June 2021.

Required

A. Prepare journal entries necessary to open the records of the partnership.

B. Prepare the balance sheet of the partnership immediately after formation.

C. Prepare a Profit Distribution account for the year ended 30 June 2021 using method 2.