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A Level Accounting (9706)•9706/12/O/N/20
Question 14 from 9706/12/O/N/20

Explanation

Ambiguous treatment of partner's loan interest in profit calculation Steps:

  • Profit before appropriation is $24,000; appropriation includes salary and residual sharing, but loan interest treatment (expense already deducted or appropriation to deduct) is unspecified.
  • If interest (50,000×550,000 × 5% = 50,000×52,500) already deducted, then deduct salary 14,000from14,000 from 14,000from24,000 = 10,000residual,Brian′sshare10,000 residual, Brian's share 10,000residual,Brian′sshare5,000.
  • If interest not deducted, then deduct interest 2,500+salary2,500 + salary 2,500+salary14,000 from 24,000=24,000 = 24,000=7,500 residual, Brian's share $3,750.
  • John's $5,000 drawings are advances against his share, not affecting residual calculation; no match to options.

Not enough information.

Final answer: Not enough information.

Topic: Preparation of financial statements

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