#Loans to/from Partner
If a partner gives loan to the partnership, the Loan account to that partner is credited.
For example, if a partnership signs a $4,000, 10 percent, 1-year loan agreement with partner A on July 1, 202I it would be recorded as follows:
Date
2021 July 1
Accounts Debit Credit
Cash 4000
Loan Payable to A 4000
On the other hand, a partnership may extend a loan to a partner, in which case a Loan to Partner (asset) account is debited.
#Allocating Profit or Loss to Partners
Profit/loss is allocated to the partners in accordance with the partnership agreement.
If no partnership agreement exists, profits and losses are to be shared equally by all
partners. Most partherships use one or more of the following distribution methods:
1. Pre-selected ratio;
2. In the ratio of their capital investment
3. Interest allowance to partners;
4. Salaries to partners; and
5. Bonuses to partners.
Illustration: JERRY and TOMMY operate a whole sale business as a partner JERRY has invested $100,000 and TOMMY has invested $50,000. Determine each partner's distributive share of a net income of $45,000 under each of the following separate assumptions;
1. They share net income in a 2/5:3/5 ratio
2. They share net income in the ratio of their capital investment
3. JERRY receive a salary allowance of $20,000, JERRY receives a salary allowance of $15,000, with the remainder divided equally
4. Each partner receives an interest allowance of 10% on capital with the remainder divided in a 2: 3 ratio.
5. Salary allowance and interest allowance as described in (3) and 4) are given, with the remaining net income divided equally
6. The partnership agreement contains no plan for dividing net income.
#Answers
(1). JERRY: 2/5 x $45,000= $18,000
TOMMY 3/5 x $45,000= $27,000
Total=$45,000
(2 ). JERRY: 100,000/1 50,000 x $45,000= $30,000
TOMMY:$50,000/1 50,000 x $45,000= $15,000
Total=$45,000
3)
JERRY TOMMY TOTAL
Salary All 20,000 15,000 35,000
Excess NI 5,000 5,000 10,000
Totals $25,000 20,0000 45,000
👆There♥All stands for Allowance and NI stands for Net Income♥
(4).
JERRY TOMMY TOTAL
Interest All 10,000 5,000 15,000
Excess NI 12,000 18,000 30,000
Totals 22,0000 23,000 45,000
5).
JERRY TOMMY TOTAL
Salary All 20,000 15,000 35,000
Interest All 10,000 5,000 15,000
Excess NI (2,500) (2,500 (5,000)
Totals 27,500 17,500 45,000
(6). JERRY1/2X$45000=$22,500
TOMMY:1/2X$45000=$22,500
TOTAL =$45,000
If a partner gives loan to the partnership, the Loan account to that partner is credited.
For example, if a partnership signs a $4,000, 10 percent, 1-year loan agreement with partner A on July 1, 202I it would be recorded as follows:
Date
2021 July 1
Accounts Debit Credit
Cash 4000
Loan Payable to A 4000
On the other hand, a partnership may extend a loan to a partner, in which case a Loan to Partner (asset) account is debited.
#Allocating Profit or Loss to Partners
Profit/loss is allocated to the partners in accordance with the partnership agreement.
If no partnership agreement exists, profits and losses are to be shared equally by all
partners. Most partherships use one or more of the following distribution methods:
1. Pre-selected ratio;
2. In the ratio of their capital investment
3. Interest allowance to partners;
4. Salaries to partners; and
5. Bonuses to partners.
Illustration: JERRY and TOMMY operate a whole sale business as a partner JERRY has invested $100,000 and TOMMY has invested $50,000. Determine each partner's distributive share of a net income of $45,000 under each of the following separate assumptions;
1. They share net income in a 2/5:3/5 ratio
2. They share net income in the ratio of their capital investment
3. JERRY receive a salary allowance of $20,000, JERRY receives a salary allowance of $15,000, with the remainder divided equally
4. Each partner receives an interest allowance of 10% on capital with the remainder divided in a 2: 3 ratio.
5. Salary allowance and interest allowance as described in (3) and 4) are given, with the remaining net income divided equally
6. The partnership agreement contains no plan for dividing net income.
#Answers
(1). JERRY: 2/5 x $45,000= $18,000
TOMMY 3/5 x $45,000= $27,000
Total=$45,000
(2 ). JERRY: 100,000/1 50,000 x $45,000= $30,000
TOMMY:$50,000/1 50,000 x $45,000= $15,000
Total=$45,000
3)
JERRY TOMMY TOTAL
Salary All 20,000 15,000 35,000
Excess NI 5,000 5,000 10,000
Totals $25,000 20,0000 45,000
👆There♥All stands for Allowance and NI stands for Net Income♥
(4).
JERRY TOMMY TOTAL
Interest All 10,000 5,000 15,000
Excess NI 12,000 18,000 30,000
Totals 22,0000 23,000 45,000
5).
JERRY TOMMY TOTAL
Salary All 20,000 15,000 35,000
Interest All 10,000 5,000 15,000
Excess NI (2,500) (2,500 (5,000)
Totals 27,500 17,500 45,000
(6). JERRY1/2X$45000=$22,500
TOMMY:1/2X$45000=$22,500
TOTAL =$45,000