Bobblyís Laundromat is a partnership with partners Bob and Bubbly as

Question

partners.
Bob has contributed capital amounting to R180 000, whereas Bubbly has
contributed R150 000 when the partnership was formed at 1 March 2012. At
29 February 20.20, the end of the first reporting period, the profit for the
period according to the statement of profit or loss amounted to R525 000.
The partnership agreement includes the following stipulations:
The partners will be paid a market-related interest of 12% on their capital
contributions.
Bubbly will be paid a monthly salary of R16 000.
Bob will be paid a monthly salary of R8 000.
The remainder of the profit will be split between Bob and Bubbly in the ration
4:1
Required
a) Prepare the journal entries that are necessary to record the interest on
capital and salaries transactions for the year ended 29 February 20.20
b) Calculate the remainder of the profit
c) Prepare the closing entries to close off the interest on capital, partnersí
salaries and the remainder of the profit.

Answer 1

a) Journal entries:

1) To record interest on Bob's capital:
Interest on capital expense 21,600
Bob's capital 21,600

2) To record interest on Bubbly's capital:
Interest on capital expense 18,000
Bubbly's capital 18,000

3) To record Bubbly's monthly salary:
Salaries expense 192,000
Bubbly's drawings 192,000

4) To record Bob's monthly salary:
Salaries expense 96,000
Bob's drawings 96,000

b) Calculation of remainder of the profit:
Total profit for the period 525,000
Less: Interest on Bob's capital (21,600)
Less: Interest on Bubbly's capital (18,000)
Less: Bubbly's salary (192,000)
Less: Bob's salary (96,000)
Remainder of profit 197,400

c) Closing entries:

1) Interest on capital:
Interest on capital expense 39,600
Interest on capital income 39,600

2) Partners' salaries:
Salaries expense 288,000
Bubbly's drawings 192,000
Bob's drawings 96,000

3) Remainder of profit:
Income summary 197,400
Bob's capital 157,920
Bubbly's capital 39,480

*Note: The remainder of the profit is split between Bob and Bubbly in the ratio of 4:1.