In: Accounting
The Mohamed & Ahmed Co. reports net sales $ 150,000, cost of goods sold $ 50,000, selling and administrative expenses $ 37,000. Interest allowances are Mohamed $9,000 and Ahmed $6,000; partner salary allowances are Mohamed $30,000 and Ahmed $25,000 and the remainder is shared 6:4 respectively.
Instructions: Indicate the division of net income to each partner and prepare journal entry for net income/net loss division.
Solution question 4:
Item |
Mohamed |
Ahmed |
Total |
Journal entry:
Date |
Account title and explanation |
Debit |
Credit |
Allocation of Net Income | |||||
Mohamed | Ahmed | Total | |||
Salary Allowance | $ 30,000.00 | $ 25,000.00 | $ 55,000.00 | ||
Interest Allowance | $ 9,000.00 | $ 6,000.00 | $ 15,000.00 | ||
Net Loss in the ratio of (6:4) | $ -4,200.00 | $ -2,800.00 | $ -7,000.00 | ||
$ 34,800.00 | $ 28,200.00 | $ 63,000.00 | |||
Net Income=Sales-cost of goods sold-Selling and Administrative expenses | |||||
Net Income= | |||||
Sales | $ 1,50,000.00 | ||||
Less: COGS | $ -50,000.00 | ||||
Gross Margin | $ 1,00,000.00 | ||||
Less: Selling and Administrative expenses | $ -37,000.00 | ||||
Net Income | $ 63,000.00 | ||||
Journal Entry | |||||
General,Journal | Debit | Credit | |||
Income Summary | $ 63,000.00 | ||||
Mohmed Capital | $ 34,800.00 | ||||
Ahmed Capital | $ 28,200.00 | ||||
(Amount of Income distributed) | |||||
Salaries Allowance and Interest allowance are not expense of partnership,so it is not considered for calculating net income. |