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$56,900.00

PROFIT AND LOSS ACCOUNT OF THE FIRM OF A., B., C. AND D., 1905. Purchases

$29,500 Sales

$57,300 Deduct:

Less returns

400 Inventory

$9,600
Returns

200
9,800

$19,700.00
Labor

11,200.00 Rent of factory..

1,000.00 Sundry factory expenses.

200.00 Repairs and Renewals.

275.00 Depreciation on Plant and Machinery

200.00 Prime Profit

24,325.00

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The state of affairs in 1907 was as follows:

Purchases, $26,800.00. Sales, $58,500.00. Inventory of raw materials on hand, $5,200.00. Factory expenses were $16,900.00, inclusive of labor, rent, etc. Selling expenses were: Advertising

$4,000.00 Rent of salesroom..

2,000.00 Commissions

1,500.00 Freight and cartage. General salaries were $7,100.00. General expenses, $400.00. Partners' Account were as follows:

200.00

1906.
June 1, D. withdrew...

$4,000.00
October 1, he reinvested.

2,000.00 March 1, B. withdrew.

1,500.00 March 1, A. withdrew.

1,500.00 August 1, he reinvested.

1,000.00 The condition of Assets and Liabilities on December 31, 1907, as disclosed by the books and various data, was as follows:

ASSETS.
Plant and machinery...
Real estate
Cash on hand and in bank.
Bills Receivable
Accounts receivable
Horses, harness and wagons..
Investments
Patents and patterns

$3,700

8,000 11,570 20,000 37,100 1,200 5,000 1,600

LIABILITIES.
Bills payable

$20,500
Accounts payable

27,500 It is required to adjust the Partners' Capital Accounts and to find the amount due by the remaining partners to the retiring one.

SOLUTION. As a Profit and Loss Account had never been prepared during the existence of the partnership, our first step must be that of preparing a Profit and Loss Account for the respective years of the partnership, and to take into consideration the various points covered by the agreement, not forgetting the amendments made with the consent of all.

Accordingly we prepare the Profit and Loss Account shown on the preceding page.

$58,000

$49,500

INVESTMENTS.

WITHDRAWALS. $2,200 9,000

$200 X II = 1,000 X 9=

$56,500 14,200

$2,000 2,000 1,000 X 7 1,000 X 4 = 500 X 3 =

$24,000 20,000 7,000 4,000 1,500

$42,300

500 X 6 =

3,000

$14,200

$56,500

$1,500 X 10 =

WITHDRAWALS. ..$15,000

3,500

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$122,000

23,500

$98,500

1,000 X 5 =

5,000

A.'S ACCOUNT.

INVESTMENTS.

$500 X 1= 500 X 6 =

$3,000 X 12 =
1,000 X 10 =
1,000 X 9
1,000 X 3

$36,000
10,000
9,000
3,000

WITHDRAWALS.
$5,500
3,000

$8,500

8,500

$58,000

B.'S ACCOUNT.

INVESTMENTS.

$5,000 X 12 =
2,000 X 6 =

$60,000
12,000

$1,500 X 9

500 X 5

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WITHDRAWALS.
$13,500
2,500

$16,000

$72,000
16,000

$72,000

$56,000

C.'S ACCOUNT.

D.'S ACCOUNT.

INVESTMENTS.

$8,000 X 12
2,000 X 9
1,000 X 6 =
500 X 4

$96,000
18,000
6,000
2,000

500 X 7

$122,000

$23,500

Having ascertained the net profit for this year (1905) we have to allocate the same in accordance with the partnership provision as well as in accordance with the amended clause.

This clause, it will be recalled, provided for a yearly reserve of $200.00 against bad debts, while the agreement proper called for the adjustment of the net profits according to the capital invested and the time that such capital had been used in the business.

Lisle in his Accounting in Theory and Practice gives the following rule in regard to such adjustment:

To divide the profits of a co-partnery according to the amount of each partner's capital and the time it has been in the business, multiply the sums on the credit side of each partner's account by the portion of time from the date of payment to the close of the account, and deduct from the sum of these products the sum of the products of the debit side formed in the same way. This will give the products (net) for each partner, and the profit to be allocated should be divided according to these products.

Following this rule we have the result shown on the preceding page.

Hence,

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We are now prepared to arrange the Profit and Loss Appropriation Account for 1905 as shown on page 1o1.

We proceed then to determine the results of the operation for the next year (1906) and prepare the Profit and Loss Account for 1906 as shown on page 102.

$14,270.00

To Reserve for Bad Debts.

A.'s share of profits.
B.'s share of profits.
C.'s share of profits.
D.'s share of profits..

PROFIT AND LOSS APPROPRIATION ACCOUNT, 1905.

$200.00 By Net Profits..
2,827.71
3,199.02
2,416.42
5,626.85

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