Observing the same method for the present (1906) year, we add to the previous balances (shown in 1905 to the Capital Accounts) the profits allocated to each partner's account, and we find the following results:

of the total net profits, available for allocation among the partners as per agreement. We prepare then the Profit and Loss Appropriation Account for 1906 on page 101.

The next step in our solution is to determine the result of the operation of the year 1907. Following the former routine we prepare the Profit and Loss Account for 1907 shown on page 103.

In accordance with our adopted rule we take into consideration the various shiftings that take place with regard to capital. and arrive at the following results:

A. is entitled to.....

B. is entitled to..

C. is entitled to.

D. is entitled to.

$1,167.36

1,186.32

1,187.14

2,059.18

of the total amount of the net profits available for allocation. We have then the Profit and Loss Appropriation Account for 1907 as shown on page 101.

From the data given we are able to verify these results by preparing a financial statement, which will show the Balance Sheet and Partners' Capital Accounts (page 105 to 109, inclusive).

In accordance with the provision in regard to goodwill, we would make the following journal entry:

Goodwill Dr.

For one-quarter of the total value, credited
to D.'s account as per agreement.

To D., Cr.......

$2,100

$2,100

For his share in the total value of good will, based,
per agreement, at one and one-half times the sum
of last year's (1907) net profits.

$20,500 27,500

Bills Payable

Capital:

$57,100

24,870

Inventory

5,200.00

4,000

1,600.00