dividing profits and losses based on interest allowance
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Done By James, Jason and JennyAdv. Accounting
Dividing Net Income or Loss Based on Interest Allowance
Definition QuestionHome
Interest Income is a method of distributing net income that takes into account each partner’s capital contribution.There will always interest allowance regardless of net income or net loss
Dividing Net Income or Loss Based on Interest Allowance
Definition QuestionHome
Dividing Net Income or Loss Based on Interest Allowance
Example
Suppose Petouch and Ting, in addition to their salary allowances of $10,000 and $15,000,
respectively, are allowed 2% interest on their capital account balances at the beginning of the accounting period. Any remaining net income is divided two-fifths to Petouch and three-fifths to Ting. Petouch’s beginning capital balance of this
year was $80,000, and Ting’s was $50,000.
Definition QuestionDefinition QuestionHome
Net Income $30,000
Interest Allowances:
Petouch $ (1,600)
Ting (1,000) (2,600)
Salary Allowances:
Petouch $ (10,000)
Ting (15,000) (25,000)
Amount to be divided between partners $ 2,400
Dividing Net Income or Loss Based on Interest Allowance
Example
Petouch: $80,000 x 2/100 = $1,600Ting: $50,000 x 2/100 = $1,000
2 100
2% =Beginning Capital Balance
Net Income of $30,000
Definition QuestionHome
Amount after subtracting salary and interest allowance: $2,400
Dividing Net Income or Loss Based on Interest Allowance
Example
Petouch: $2,400 x 2/5 = $ 960Ting: $2,400 x 3/5 = 1,440Total: $2,400
Determining Each Partner’s net income:Petouch:$1,600 + $10,000 + $ 960 = $12,560Ting: $1,000 + $15,000 + $1,440 = 17,440Total: $30,000
Net Income of $30,000
Definition QuestionHome
Recording General Journal
Dividing Net Income or Loss Based on Interest Allowance
Example
GENERAL JOURNAL PAGE 64
DATE DESCRIPTION POST.REF.
DEBIT$
CREDIT$
Closing Entry
Dec. 31 Income Summary
Petouch Ratanachaisuwan, Capital
Ting Ting Ratanachaisuwan, Capital
30 0 0 0 00
12 5 6 0 00
17 4 4 0 00
Net Income of $30,000
Definition QuestionHome
Dividing Net Income or Loss Based on Interest Allowance
Example
Petouch Rat., Capital Ting Ting Rat., Capital
Bal. 80,000Clos. 12,560Bal. $92,560
- +
Bal. 50,000Clos. 17,440Bal. $67,440
- +
New Capital Balance
Net Income of $30,000
Definition Question
New Capital Balance
Home
Net Loss $ (4,000)
Interest Allowances:
Petouch $ (1,600)
Ting (1,000) (2,600)
Salary Allowances:
Petouch $ (10,000)
Ting (15,000) (25,000)
Amount to be divided between partners $(31,600)
Dividing Net Income or Loss Based on Interest Allowance
Example
Petouch: $80,000 x 2/100 = $1,600Ting: $50,000 x 2/100 = $1,000
2 100
2% =Beginning Capital Balance
Net Loss of $4,000
Definition QuestionHome
Amount after subtracting salary and interest allowance: $(31,600)
Dividing Net Income or Loss Based on Interest Allowance
Example
Petouch: $(31,600) x 2/5 = $(12,640)Ting: $(31,600) x 3/5 = (18,960)Total: $(31,600)
Determining Each Partner’s net income:Petouch:$1,600 + $10,000 + $(12,640) = $(1,040)Ting: $1,000 + $15,000 + $(18,960) = (2,960)Total: $(4,000)
Net Loss of $4,000
Definition QuestionHome
Recording General Journal
Dividing Net Income or Loss Based on Interest Allowance
Example
GENERAL JOURNAL PAGE 64
DATE DESCRIPTION POST.REF.
DEBIT$
CREDIT$
Closing Entry
Dec. 31
Income Summary
Petouch Ratanachaisuwan, Capital
Ting Ting Ratanachaisuwan, Capital
1 0 4 0 00
2 9 6 0 00
4 0 0 0 00
Net Loss of $4,000
Definition QuestionHome
Dividing Net Income or Loss Based on Interest Allowance
Example
Petouch Rat., Capital Ting Rat., Capital
Bal. 80,000Bal. $78,960
- +
Bal. 50,000Bal. $47,040
- +
New Capital Balance
Net Loss of $4,000
Clos. 1,040 Clos. 2,960
Definition Question
New Capital Balance
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