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Jim and Pam formed a partnership to open a paper company by investing $70,000 and $50,000,...

Question:

Jim and Pam formed a partnership to open a paper company by investing $70,000 and $50,000, respectively. They agreed to share profit and losses by allowing a $5,000 annual salary allowance to Jim and a $1,500 annual salary allowance to Pam. As well, each partner is to receive an interest allowance equal to a 10% return on initial capital investments, and the balance is to be divided 70% to Jim and 30% to Pam. At the end of the first year, December 31, 2020, the Income Summary had a credit balance of $60,000. Jim withdrew $3,000 during the year, and Pam withdrew $2,500. (16 marks)Jim and Pam formed a partnership to open a paper company by investing $70,000 and $50,000, respectively. They agreed to share(Type debit account name in column C, Credit account name in Column D) Account Name Debit Date Credit

Jim and Pam formed a partnership to open a paper company by investing $70,000 and $50,000, respectively. They agreed to share profit and losses by allowing a $5,000 annual salary allowance to Jim and a $1,500 annual salary allowance to Pam. As well, each partner is to receive an interest allowance equal to a 10% return on initial capital investments, and the balance is to be divided 70% to Jim and 30% to Pam. At the end of the first year, December 31, 2020, the Income Summary had a credit balance of $60,000. Jim withdrew $3,000 during the year, and Pam withdrew $2,500. (16 marks) a) Show calculation, in table format, to determine each partner's share of profit in the first-year. Round calculations to the nearest dollar. Fill in the yellow squares. b) Prepare the entry to close the Income Summary account on December 31, 2020. c) Calculate the balance in each partner's capital account at the end of their first year. Share to Jim Share to Pam Total a) Profit/loss Allowances: Salary allowance Interest allowance Total allowances Balance of profit Allocation of remainder Balance of profit Total share of each partner
(Type debit account name in column C, Credit account name in Column D) Account Name Debit Date Credit

Answers

a Share to Jim Share to Pam Total
Profit/loss $       60,000
Allowances
Salary Allowance $            5,000 $                 1,500
Interest Allowance (Refer : Note 1) $            7,000 $                 5,000
Total Allowance $          12,000 $                 6,500 $       18,500
Balance of Profit ($60,000-$18500) $       41,500
Allocation of Remainder (Refer Note 2) $          29,050 $               12,450 $       41,500
Balance of Profit $                 -  
Total Share of Each Partner (Total Allowance + Share of Profit $          41,050 $               18,950 $       60,000
Note 1
It says 10% to each , on their Intial Investment
A B C
Partner Initial Investment 10% of B
Jim $ 70000

$ 7000

Pam $ 50000 $ 5000

Note 2 : It says after allowance & Interest remaining profit should be distbuted in ratio 0f 70% and 30% to Jim & Pam Respectively

A B C = B*41500
Partner Ratio Balance Profit is $41500
Jim 70% $ 29050
Pam 30% $ 12450

b JOUNRAL ENTERIES

Date Account Name Debit Credit
31-12-2020 Salary Allowance Account $           6,500
Jim's Capial Account $                       5,000
Pam's Capital Account $                       1,500
(Being Salary Allowance provided to Partners)
31-12-2020 Interest Allowance Account $        12,000
Jim's Capital Account $                       7,000
Pam's Capital Account $                       5,000
(Being Interest on Intial Investment @ 10% provided to partners)
31-12-2020 Income Summary Account $        41,500
Jim'sCapital Account $                    29,050
Pam's Capital Account $                    12,450
(Being remaining balance of Income Summary distributed among partners in ratio of 70:30)

C. Balance of Partner's Capital Account at the end of 31, Decemeber 2020

Account Balance of Jim's Capital Account Balance of Pam's Capital Account Total
Initial Investment $                   70,000 $              50,000 $          120,000
Add: Salary Allowance $                      5,000 $                1,500 $               6,500
Add: Interest Allowance $                      7,000 $                5,000 $             12,000
Add: Profit Share $                   29,050 $              12,450 $             41,500
Less : Amount Withdrwan $                   (3,000) $              (2,500) $             (5,500)
Balance at the end $                 108,050 $              66,450 $          174,500
.

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