The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business's profit or loss in the following sequence: Jones, the managing partner, receives a bonus equal to 10 percent of the business’s profit. Each partner receives 10 percent interest on average capital investment. Any residual profit or loss is divided equally.
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.
The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business's profit or loss in the following sequence:
- Jones, the managing partner, receives a bonus equal to 10 percent of the business’s profit.
- Each partner receives 10 percent interest on average capital investment.
- Any residual profit or loss is divided equally.
The average capital investments for 2021 were as follows:
| Jones | $ | 80,000 |
| King | 160,000 | |
| Lane | 240,000 | |
The partnership earned $40,000 net income for 2021. Prepare a schedule showing how the 2021 net income should be allocated to the partners. (Loss amounts should be indicated with a minus sign.)
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