6. Analysis of transactions in the analysis of the problem shows that it has been neces sary to make adjustments among the partners for in terest on capital, drawings, etc., which is here shown: Adjustment account $660.00 To A, capital account $600.00 To D, capital account 60.00 Adjustment of interest on first year's investments as per unanimous agreement.
B, capital account $300.00 C, capital account 360.00 To adjustment account $660.00 Adjustments of interest on first year's invest ments as per unanimous agreement.
The entry shows a debit of $660 to the adjust ment account, and a credit to A for $600 and to D for $60. It also shows a debit to B for $300, and one to C for $360, and a credit to the adjust ment account for the $660. These entries repre sent the adjustment of interest on the first year's investments. This is not carried thru the profit-and loss account because it has nothing to do with the profits. In this case, if B and C are debited, and A and D credited for the respective amounts mentioned in the adjustment entry, the result is the same as if the adjustment account was debited and credited for the same amounts. Nevertheless, if the figures dis closed a balance in the adjustment account, if it were debited for only $600 instead of $660, and credited for $660, that balance of $60 would have to be apportioned among the partners in accord ance with the provision for sharing profits and losses.
In such case the partner or partners who are charged with interest would share in the apportionment, and rightly so. It makes no difference to the business whether the interest is earned by reason of a partner's deficiency of investment, or because the money has been loaned at interest to an outsider.
7. Debiting or crediting partners' accounts for ad justments.—After having made the adjustment en tries each partner's respective account is debited or credited in accordance with the adjustments. The value of the good-will to which A is entitled, as set forth in Clause 6, is then found. The clause reads, that in case of the retirement of a member of the firm he is to receive for good-will one-half the sum of the last two years' net profits of the business. On page 88 it is seen that the net profit for the year 1915 was $6,700, to which is added the net profit of this year, $22,080, making a total of $28,780. Therefore, A is entitled to one-half of this, $14,390, and this sum is credited to his account. As four notes total ing $39,075 are issued to A and a like amount paid him in cash, his account is debited for such notes and cash, thus making it balance.