Question

Allison and Josh are partners in a business. Allison’s capital is $60,000, and Josh’s capital is $100,000. Profits for the year are $80,000. They agree to share profits and losses as follows:

Allison Josh
Salaries $20,000 $40,000
Interest on capital 10% 10%
Remaining profits and losses 3/5 2/5
Allison’s share of the profits before paying salaries and interest on capital is:

Answer 1

Answer on Question #62381 - Economics - Accounting

Allison and Josh are partners in a business. Allison’s capital is $60,000, and Josh’s capital is $100,000. Profits for the year are $80,000. They agree to share profits and losses as follows:

Allison’s share of the profits before paying salaries and interest on capital is:

Solution

First we should calculate the interest on capital.

Interest on Capital

Allison = $60,000 × 10/100 = $6,000

Josh = $100,000 × 10/100 = $10,000

Then we should calculate the Profit transferred to Partners’ Capital A/c

Profit transferred to Partners’ Capital A/c = $80,000 - ($6,000 + $10,000) - ($20,000 + $40,000) = $4,000. Allison’s share of the profits before paying salaries and interest on capital is: Allison = $4,000 × 3 / 5 = $2,400

Profit and Loss Appropriation Account

Dr. Cr

Answer:

Allison’s share of the profits before paying salaries and interest on capital is $2,400.

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