Reference no: EM132544928
Problem 1: Mary and Paul have capital account balances at the end of the year of $100 000 and $80 000 respectively. Profit of the partnership is $90 000. The profit and loss sharing agreement calls for (1) a salary of $25 000 to Mary and $15 000 to Paul, (2) 10 % p.a. interest on capital balances, (3) the residual profit to be split 60:40 in favour of Mary. What is Mary's share of the distribution?
a. $51 000
b. $29 200
c. $65 000
d. $54 200
Problem 2: Simon and Keith have a profit and loss sharing agreement where: (1) salaries of $25 000 each are credited, (2) 8% interest is allowed on capital balances (3) the remaining profit or loss is split 60-40, respectively. At the end of the year, before the distribution of profits or losses, capital account balances were $40 000 for Simon and $20 000 for Keith. There was a profit of $50 000 before distributions to the partners. What is Keith's year-end capital account balance assuming capital balances are adjusted to reflect profits and losses?
a. $43 080
b. $44 680
c. $46 600
d. $24 680
Problem 3: Hodges and Burton formed a partnership with capital of $30 000 and $45 000 respectively. The partnership agreement provides for the crediting of annual salaries of $45 000 to Hodges and $75 000 to Burton. Each partner is entitled to 20% interest on capital. The remaining profit or loss is divided equally. How much, in total, will be credited to Hodges' capital account if profit for the year is $240 000 assuming capital balances are adjusted to reflect profits and losses?
a. $120 000
b. $103 500
c. $118 500
d. $105 000
Problem 4: The partnership agreement of X and Y provides that interest at 5% per annum is to be charged on partners' drawings. During year ended 31 December 2011 drawings by X were:
$
1 February 2011 2400
1 June 2011 4800
1 August 2011 960
What is the total amount of interest on drawings chargeable to X's current account for the year?
a. $300
b. $270
c. $100
d. $200
Problem 5: How is the allocation of partnership profits affected by drawings?
a. Drawings must be added back to profits before they are allocated.
b. Drawings must be deducted from profits before they are allocated.
c. Drawings only affect profit allocation if the partnership agreement provides for interest on drawings.
d. Drawings must be deducted from salaries due to the partners.
Problem 6: If a partner makes a cash advance to a partnership to be repaid in five years time and does not wish it to be included as a capital contribution, how will it be classified in the balance sheet?
a. Current liability
b. Non-current asset
c. Non-current liability
d. Current asset