Red and White formed a partnership in 20X1. The partnership agreement provides for annual salary allowances of $55,000 for Red and $45,000 for White. The partners share profits equally and losses in a 60/40 ratio. The partnership had earnings of $80,000 for 20X1 before any allowance to partners. What amount of these earnings should be credited to each partner's capital account?
Answer: Red: $43,000; White: $37,000
Salaries are paid (as an expense) to the partners before partnership earnings are allocated:
Allocation
Earnings
To Red To White Total Balance
$80,000
Salary allowance $55,000 $45,000 $100,000 (20,000)
Loss allocation
To Red (.6 x $20,000) (12,000) (12,000) ( 8,000)
To White (.4 x $20,000) (8,000) (8,000) 0
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Totals $43,000 $37,000 $ 80,000
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The question asks for the earnings – why isn't it 50/50? I picked 40,000 to each.
A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!
Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.
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