Louise and Thelma are in partnership sharing residual profits and losses 50:50. The profit for the year is $96 000. Thelma is entitled to a salary of $40 000 per annum (to be paid by means of a book entry). The amount credited to Thelma's retained earnings account after the final distribution of profits is:
A) $88 000
B) $48 000
C) $28 000
D) $68 000

Question

Quizplus · Accepted Answer

Thelma's salary of $40 000 needs to be subtracted from the total profit of $96 000, leaving $56 000 to be shared equally between Louise and Thelma.

Louise and Thelma each receive $28 000 (50% of $56 000) as their share of the residual profit.

Thelma's retained earnings account will be credited with her share of the profit ($28 000) plus her salary ($40 000), for a total of $68 000.

Louise and Thelma Are in Partnership Sharing Residual Profits and Losses