Question

Mary and David are partners who share profits and losses on a 3:1 basis. This means Mary receives 75% and David receives 25% of income after any allocations. Mary receives a salary allowance of $15,000. Earnings for the period total $51,000. What will be the total amount credited to Mary's Capital account when the Income Summary account is closed?

Answer 1

$53,250

Step-by-step explanation:

In case of profit sharing ratio 3:1

Mary will receive 75% of profits, provided after any allocations made.

Therefore total share of Mary = Salary + Share in profit.

= $15,000.00 + ($51,000.00 X 75%) = $15,000.00 + $38,250.00 = $53,250.00

Note: Salary will also be credited to Mary's capital account, although in some cases firms also open partner's current account in that case salary will be credited to current account and not the capital account. But generally only one capital account is being operated.

Therefore amount credited to Mary's Capital Account = $53,250.00