Question: Sun, Shui, and Qing are partners, sharing profits and losses in the ratio of 3:2:4. The capital and current account balances as at 1 January 2016 were:
Capital account Current account
Sun 110,000 30,000
Shui 100,000 (10,000) Dr.
Qing 100,000 18,000
Due to some disputes over business operations, Shui will withdraw from the partnership with effect from 1 January 2017. The partners agreed on the following terms:
i Goodwill of the partnership was agreed to be $62,000 as of 31 December 2016. No goodwill account was to be maintained.
ii Sun, Shui and Qing were entitled to an annual salary allocation of $24,000, $11,000 and $12,000 respectively.
iii Sun and Qing would continue business and share profits and losses equally.
iv Shui's capital account and current account will be settled in full in cash on 31 December 2016.
The net profit before appropriation for the year ended 31 December 2016 was $128,800. The drawings made during the year were: Sun 50,000 Shui 25,000 Qing 65,000 The partners agreed to keep their capital accounts at a fixed amount. All adjustments were made in their respective current accounts
Required: a. Prepare relevant journal entries (with narrations) to record the appropriation of profits among the partners
b. Prepare the partners' current accounts in columnar form showing the details of the movement in the partners' current account in 2016.
c. Prepare an extract of the statement of financial position, showing the interest of individual partners in the partnership after Shui's leaving.