The ABC partnership had net income of $100,000 for 20X9. They allocate profits and losses in the ratio 5:3:2. After closing the 12/31/20X9 books they discovered that $30,000 was spent on a piece of land in December 20X9 and was expensed. What should happen?

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8 July, 21:56

The ABC partnership had net income of $100,000 for 20X9. They allocate profits and losses in the ratio 5:3:2. After closing the 12/31/20X9 books they discovered that $30,000 was spent on a piece of land in December 20X9 and was expensed. What should happen?

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Alannah Hodges · Answer 1

The journal entry would be passed as the accounts are closed, which is shown below:

Explanation:

As the books are closed, then the correction would be made against the capital accounts of the partners. And the following Journal entry would be made as:

Land A/c ... Dr $30,000

A's Capital A/c ... Cr $15,000

B's Capital A/c ... Cr $9,000

C's Capital A/c ... Cr $6,000

Working Note:

The amount of land is to be proportionate as the ratio of the partners which is computed as:

A's Capital A/c = Land amount * Ratio of A / Sum of ratios

= $30,000 * 5 / 10

= $15,000

B's Capital A/c = Land amount * Ratio of A / Sum of ratios

= $30,000 * 3 / 10

= $9,000

C's Capital A/c = Land amount * Ratio of A / Sum of ratios

= $30,000 * 2 / 10

= $6,000