Peter and Paul Have a Partnership Agreement That Includes the Following

question 131

Essay

Peter and Paul have a partnership agreement that includes the following provisions regarding sharing profit or loss:
1. A salary allowance of $ 30,000 to Peter and $ 15,000 to Paul.
2. An interest allowance of 10% on capital balances at the beginning of the year.
3. The remainder to be divided 30% to Peter and 70% to Paul.
The capital balances on January 1, 2021, for Peter and Paul were $ 80,000 and $ 100,000, respectively. During 2021, the Peter and Paul Merchandising Partnership had sales of $ 330,000, cost of goods sold of $ 190,000, and operating expenses of $ 60,000.
Instructions
Prepare an income statement for the Peter and Paul Merchandising Partnership for the year ended December 31, 2021. As a part of the income statement, include a division of profit to each of the partners.

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Definitions:

Total Profit

The financial gain obtained when total revenue exceeds total expenses from business operations.

Graph

A diagram representing data visually, using lines, bars, or other symbols.

Implicit Cost

Refers to the opportunity costs that are not directly paid for in money but represent the loss of value from using resources for a particular venture instead of their best alternative use.

Explicit Cost

Direct, out-of-pocket payments for goods or services used in the production of a product or offering of a service.