Question

At the end of its first year of operations, December 31, 2016, ABC

Company’s unadjusted accounts show the following:

Partner	Drawings	Capital
S. Abbott	$23,000	$50,000
D. Bartlett	14,000	30,000
R. Cross	10,000	20,000

The capital balance above represents each partner’s initial capital

investment. No closing entries have been recorded for net income (loss) or

drawings as yet.

Required:

a) Journalize the entry to record the division of net income for the year

ended December 31, 2016 under each of the following independent

assumptions: (Hint: you may find it helpful to prepare a schedule like

one of those shown in the textbook)

1. Net income is shared on the ratio of their initial investments.

Net income is $47,000.

2. Net income is $34,000. Bartlett and Cross are given salary

allowances of $15,000 and $10,000 respectively. The

remainder is shared equally.

3. Net income is $23,000. Each partner is allowed interest of 5%

on beginning capital balances. Cross is given a $15,000 salary

allowance. The remainder is shared equally.

b) Journalize the entry to close each partner’s drawings account.

c) Prepare a statement of partners’ equity for the year end under

assumption #3 in part (a) above.

Answer 1

Answer a-1
	Allocation of Partnership Income
		S.Abbott	D. Bartlett	R. Cross	Total
Net Income		-	-		47,000.00
Allocated in partner - 5:3:2		23,500.00	14,100.00	9,400.00	47,000.00
Balance of Income					-
Share of Partners		23,500.00	14,100.00	9,400.00
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec-17	Income Summary	47,000.00
	S.Abbott, Capital		23,500.00
	D. Bartlett, Capital		14,100.00
	R. Cross, Capital		9,400.00
	(record to close the Income Summary Account)
Answer a-2.
	Allocation of Partnership Income
		S.Abbott	D. Bartlett	R. Cross	Total
Net Income		-	-		34,000.00
Salary Allowances		-	15,000.00	10,000.00	25,000.00
Balance of Income					9,000.00
Balance Allocated Equally		3,000.00	3,000.00	3,000.00	9,000.00
Balance of Income					-
Share of Partners		3,000.00	18,000.00	13,000.00
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec-17	Income Summary	34,000.00
	S.Abbott, Capital		3,000.00
	D. Bartlett, Capital		18,000.00
	R. Cross, Capital		13,000.00
	(record to close the Income Summary Account)
Answer a-3.
	Allocation of Partnership Income
		S.Abbott	D. Bartlett	R. Cross	Total
Net Income		-	-		23,000.00
Salary Allowances		-	-	15,000.00	15,000.00
Balance of Income					8,000.00
Interest Allowances - 5%		2,500.00	1,500.00	1,000.00	5,000.00
Balance of Income					3,000.00
Balance Allocated Equally		1,000.00	1,000.00	1,000.00	3,000.00
Balance of Income					-
Share of Partners		3,500.00	2,500.00	17,000.00
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec-17	Income Summary	23,000.00
	S.Abbott, Capital		3,500.00
	D. Bartlett, Capital		2,500.00
	R. Cross, Capital		17,000.00
	(record to close the Income Summary Account)
Answer b.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec-17	S.Abbott, Capital	23,000.00
	D. Bartlett, Capital	14,000.00
	R. Cross, Capital	10,000.00
	S.Abbott, Withdrawls		23,000.00
	D. Bartlett, Withdrawls		14,000.00
	R. Cross, Withdrawls		10,000.00
	(Record the close of withdrawl accounts)
Answer c-1.
Capital Account Balances		S.Abbott	D. Bartlett	R. Cross	Total
Intial Investments		50,000.00	30,000.00	20,000.00	100,000.00
Withdrawls		(23,000.00)	(14,000.00)	(10,000.00)	(47,000.00)
Share of Income		23,500.00	14,100.00	9,400.00	47,000.00
Ending Balances		50,500.00	30,100.00	19,400.00	100,000.00
Answer c-2.
Capital Account Balances		S.Abbott	D. Bartlett	R. Cross	Total
Intial Investments		50,000.00	30,000.00	20,000.00	100,000.00
Withdrawls		(23,000.00)	(14,000.00)	(10,000.00)	(47,000.00)
Share of Income		3,000.00	18,000.00	13,000.00	34,000.00
Ending Balances		30,000.00	34,000.00	23,000.00	87,000.00
Answer c-3.
Capital Account Balances		S.Abbott	D. Bartlett	R. Cross	Total
Intial Investments		50,000.00	30,000.00	20,000.00	100,000.00
Withdrawls		(23,000.00)	(14,000.00)	(10,000.00)	(47,000.00)
Share of Income		3,500.00	2,500.00	17,000.00	23,000.00
Ending Balances		30,500.00	18,500.00	27,000.00	76,000.00