Question

1. During 2017, the partnership of Kiki and Tammy earned net income of $ 125,000. Kiki’s beginning capital was $ 60,000 and she withdrew $15,000 during the year. Tammy’s beginning capital $ 70,000 and she had drawings of $22,000 for the year.

Instructions:

(a) Assume the partnership income- sharing agreement calls for income to be divided with a salary of $ 30,000 to Kiki and $ 25,000 to Tammy, interest of 10% on beginning capital, and the remainder divided 60% to Kiki and 40% to Tammy. Prepare the journal entry to record the allocation of net income.

(b) Prepare the Partnership Equity Statement for 2017 under the assumption in part a.

Answer 1

• All working forms part of the answer
• Requirement ‘a’

Working

			Net Income
	Kiki	Tammy	Net Income Distributed	Undistributed balance
Net Income				$        125,000.00
Salary	$           30,000.00	$          25,000.00	$          55,000.00	$          70,000.00
Interest on Beginning Capital	$             6,000.00 [60000 x 10%]	$             7,000.00 [70000 x 10%]	$          13,000.00	$          57,000.00
Remaining Net Income	$           34,200.00 [57000 x 60%]	$          22,800.00 [57000 x 40%]	$          57,000.00	$                          -
Total Income Distributed	$           70,200.00	$          54,800.00	$        125,000.00

--Journal Entry:

Accounts title	Debit	Credit
Income Summary	$         125,000.00
Capital, Kiki		$          70,200.00
Capital, Tammy		$          54,800.00
(Net Income distributed)

• Requirement ‘b’

Partnership Equity Statement for 2017
	Capial - Kiki	Capital - Timmy	Total
Beginning Balances	$           60,000.00	$          70,000.00	$        130,000.00
Add: Net Income distributed	$           70,200.00	$          54,800.00	$        125,000.00
Less: Drawings [to be deducted]	$           15,000.00	$         22,000.00	$          37,000.00
Ending balance	$         115,200.00	$        102,800.00	$        218,000.00