NN and OO created a partnership to own and operate a health- food store. The partnership agreement provided that NN receive a salary of 100,000 and OO a salary of 50,000 to recognize their relative time spent in operating the store. Remaining profits and losses were divided 60:40. Income for 2018, the first year of operations, of 130,000 was allocated as 88,000 to NN and 42,000 to OO. On January 1, 2019, the partnership agreement was changed to reflect the fact that OO could no longer devote any time to the store’s operation. The new agreement allows NN a salary of 180,000 and the remaining profit or loss be allocated equally. During 2019, an error was discovered such that the 2018 net income reported was understated by 40,000. The partnership income for 2019 including the 40,000 error was 250,000. Allocate the 250,000 to the partners.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
- NN and OO created a
partnership to own and operate a health- food store. The partnership agreement provided that NN receive a salary of 100,000 and OO a salary of 50,000 to recognize their relative time spent in operating the store. Remaining profits and losses were divided 60:40. Income for 2018, the first year of
operations, of 130,000 was allocated as 88,000 to NN and 42,000 to OO.
On January 1, 2019, the partnership agreement was changed to reflect the fact that OO could no longer devote any time to the store’s operation. The new agreement allows NN a salary of 180,000 and the remaining profit or loss be allocated equally. During 2019, an error was discovered such that the 2018 net income reported was understated by 40,000. The partnership income for 2019 including the 40,000 error was 250,000.
Allocate the 250,000 to the partners.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
