Question

Sharon and Nancy formed a partnership by making capital contributions of $130,000 and $195,000 respectively. The annual partnership income of $230,000 is to be allocated assuming a salary allowance of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their initial capital investments; and the balance shared equally.

Prepare the entries to record the initial capital investments, the allocation of net income, and close the partner's withdrawal accounts assuming that Sharon withdrew $50,000 and Nancy withdrew $45,000.

Answer 1

• All working forms part of the answer
• Working: Allocation of Net Income of $ 230,000

	Sharon	Nancy	Unallocated Income
Annual Partnership Income			$        230,000.00
Salary Allowance	$          40,000.00	$        35,000.00	$        (75,000.00)
Interest on Capital	$          15,600.00 [130000 x 12%]	$        23,400.00 [195000 x 12%]	$        (39,000.00)
Total Salary & Interest	$         55,600.00	$        58,400.00	$      (114,000.00)
Remaining Income to be distributed equally			$        116,000.00
Remaining income distributed Equally	$          58,000.00	$        58,000.00	$      (116,000.00)
Total Distribution of Net Income	$        113,600.00	$      116,400.00	$                          -

• Answer: All Journal Entries that has been asked

No.	Accounts title	Debit	Credit
1	Cash	$        325,000.00
	Sharon, Capital		$      130,000.00
	Nancy, Capital		$      195,000.00
	(Initial capital Investment recorded)
2	Income Summary	$        230,000.00
	Sharon, Capital		$      113,600.00
	Nancy, Capital		$     116,400.00
	(Net Income distributed)
3	Sharon, Capital	$          50,000.00
	Sharon, Withdrawals		$        50,000.00
	(Sharon's withdrawal account closed)
4	Nancy, Capital	$          45,000.00
	Nancy, Withdrawals		$        45,000.00
	(Nancy's withdrawal account closed)