Reference no: EM132744397
Red and Yellow entered into a partnership on March 1, 2006, investing $ 2,000,000 and $ 1,000,000 respectively. They agreed that Red is the managing partner and is to receive a salary allowance of 240,000 per year and a bonus of 10% of the net profit after deducting salary but before bonus. The balance is to be divided in the ratio of their original capital.
Selected ledger account balances as of December 31, 2006 before adjustments showed the following:
Red, Capital $ 2,000,000
Red, Drawing 200,000
Yellow, Capital 1,000,000
Yellow, Drawing 100,000
Sales 3,000,000
Sales returns and allowances 30,000
Purchases 1,800,000
Operating Expenses 480,000
Additional information:
a. Inventories on December 31, 2006 were as follows: Office Supplies, 8,100; merchandise, 500,000
b. Prepaid insurance of 12,000 and accrued expenses of 4,000 were recognized
c. Depreciation expense of 40,000 was also provided.
Problem 1. Determine the profit or loss of the partnership. Assuming 30% income tax rate.
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