A Level Accounting (9706)•9706/12/O/N/23
Explanation
Adjust net profit for partner appropriations before ratio sharing Steps:
- Net interest adjustment: drawings interest 2,000 = $18,000 deduction from profit.
- Residual profit: 18,000 net interest minus 49,600.
- L's share of residual: 3/5 × 29,760. Why C is correct:
- Residual profit follows partnership appropriation by netting total capital credits against drawing charges, deducting loan interest as a prior claim, then applying the 3:2 sharing ratio to the balance. Why the others are wrong:
- A: $26,520 understates residual by over-deducting loan interest or misapplying ratio.
- B: $27,200 results from deducting full drawings without netting capital interest.
- D: $28,200 ignores netting and treats loan interest as part of L's share only. Final answer: C
Topic: Preparation of financial statements
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