Reference no: EM132544438

Question -

Mickey and Donald were partners in a firm sharing profits in the ratio of 1: 2.

Their fixed capitals on 1st January, 2020 were Mickey $10,000 and Donald $20,000.

They agreed to allow interest on capital @ 10% per annum and charge on drawings @ 5% per annum.

The firm earned a profit, of $50,000 for the year ended 31st December, 2020.

The drawings of Mickey and Donald during the year were $2,000 and $3,000 respectively.

Both Mickey and Donald are entitled to salaries of $20,000 and $30,000 per annum respectively. Both are non-working partners in their business.

They follow method 2 - fixed capital method.

Required - Prepare:

1. Journal entries to record the above transactions. Also prepare the closing entries.

2. Profit and loss appropriation account (T form).

3. Current account of each partner (T form).

4. Balance sheet extract showing capital and current accounts.