Louise and Billy are in partnership sharing residual profits and losses 50:50. The profit for the year is $120 000. Louise is entitled to a salary of $50 000 per annum (to be paid by means of a book entry). Calculate the amount credited to Louise's retained earnings account after the final distribution of profits.
A) $170 000
B) $50 000
C) $85 000
D) $60 000

Question

Quizplus · Accepted Answer

Firstly, the partnership needs to deduct Louise's salary from the profit:
$120,000 - $50,000 = $70,000

Next, this remaining profit is split 50:50 between Louise and Billy:
$70,000 / 2 = $35,000

Since Louise is entitled to her share of the profit plus her salary, the amount credited to her retained earnings is:
$35,000 + $50,000 = $85,000

Louise and Billy Are in Partnership Sharing Residual Profits and Losses