At the beginning of its first year of operations on January 1, 2019, Blue Company’s accounts...

At the beginning of its first year of operations on January 1, 2019, Blue Company’s accounts show the following.

Mohammed	160,000 SR
Ali	80,000 SR
Khalid	50,000 SR

The net income or net loss for 2019 has not been closed to the partners’ capital accounts.

Required:

Journalize the entry to record the division of net income for 2019 under each of the following independent assumptions (you can prepare a schedule showing the distribution of net income to help you in journalizing the entry).

a) Net income is 86,000 SR. Mohammed and Ali are given salary allowances of 30,000 SR and 20,000 SR, respectively. The remainder is shared equally between the three partners.

b) Net income is 67,500 SR. Each partner is allowed interest of 10% on beginning capital balances. Mohammed is given a 40,000 SR salary allowance. The remainder is shared equally between the three partners.

Solutions

Expert Solution

	Journal Entries

	Particulars	Debit	Credit

a)	Income Summary	$ 86,000.00
	To Mohammed, Capital		$ 42,000.00
	To Ali, Capital		$ 32,000.00
	To Khalid, Capital		$ 12,000.00


b)	Income Summary	$ 67,500.00
	To Mohammed, Capital		$ 55,500.00
	To Ali, Capital		$ 7,500.00
	To Khalid, Capital		$ 4,500.00

Workings:

	Schedule of Distribution

a)	Particulars	Mohammed	Ali	Khalid	Total

	Salary Allowances	$ 30,000.00	$ 20,000.00	$ -	$ 50,000.00
	Capital	$ 12,000.00	$ 12,000.00	$ 12,000.00	$ 36,000.00
	Total	$ 42,000.00	$ 32,000.00	$ 12,000.00	$ 86,000.00

b)	Particulars	Mohammed	Ali	Khalid	Total

	Interest on Capital	$ 16,000.00	$ 8,000.00	$ 5,000.00	$ 29,000.00
	Salary Allowances	$ 40,000.00	$ -	$ -	$ 40,000.00
	Capital	$ (500.00)	$ (500.00)	$ (500.00)	$ (1,500.00)
		$ 55,500.00	$ 7,500.00	$ 4,500.00	$ 67,500.00

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

At the beginning of 2019, its first year of operations, Cooke Company purchased an asset for...

At the beginning of 2019, its first year of operations, Cooke Company purchased an asset for $100,000. This asset has an 8-year economic life with no residual value, and it is being depreciated by the straight-line method for financial reporting purposes. For tax purposes, however, the asset is being depreciated using the MACRS (200%, 5-year life) method. During 2019, Cooke reported pretax financial income of $51,500 and taxable income of $44,000. The depreciation temporary difference caused the difference between the...

At the end of its first year of operations on December 31, 2020, Crane Company’s accounts...

At the end of its first year of operations on December 31, 2020, Crane Company’s accounts show the following. Partner Drawings Capital Art Niensted $23,200 $46,700 Greg Bolen 14,100 31,500 Krista Sayler 10,800 26,000 The capital balance represents each partner’s initial capital investment. Therefore, net income or net loss for 2020 has not been closed to the partners’ capital accounts. To record the division of net income for the year 2020 under each of the following independent assumptions. 1. Net...

At the end of its first year of operations, December 31, 2016, ABC Company’s unadjusted accounts...

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...

In its first month of operations (May 2019), Holland Company’s Department 1 incurred charges of $72,000...

In its first month of operations (May 2019), Holland Company’s Department 1 incurred charges of $72,000 for direct materials (9,000 units), $38,700 for direct labor, and $13,950 for manufacturing overhead. At month end, 7,500 units had been finished and transferred out. Those remaining were finished with respect to material but only 40% finished with respect to conversion. Assuming Holland uses the weighted average method and that materials are added at the beginning of the process and conversion occurs evenly, compute...

The Stephen’s Marine Construction Company began operations in January 2019. After the first year of operations,...

The Stephen’s Marine Construction Company began operations in January 2019. After the first year of operations, the following information was provided to you for year ending December 31, 2019. 1. Pretax financial statement income: $805,600 2. Differences between financial statement income and tax return income were as follows: a. Gross profit reported on long-term contracts was $175,000 on the financial statement, and $60,000 on the tax return. b. Depreciation expense was $14,000 on the financial statement, and $28,000 on the...

Baldwin Company has provided the following information for 2019, the first year of the company’s operations....

Baldwin Company has provided the following information for 2019, the first year of the company’s operations. (i) Purchased raw materials on account for $240,000. (ii) Issued $230,000 in raw materials to production ($32,000 were not traceable to specific jobs). (iii) Incurred $242,000 in direct labour costs (24,120 hours) and $92,500 in supervision costs (paid in cash). (iv) Incurred the following additional manufacturing overhead costs: factory utilities $24,000 (paid in cash); depreciation on equipment $45,000; indirect supplies $17,500 (paid in cash)....

Wingfoot Co. began operations on July 1, 2019. By the end of its first fiscal year,...

Wingfoot Co. began operations on July 1, 2019. By the end of its first fiscal year, ended June 30, 2020, Wingfoot had sold 10,000 wingers. Selected data on operations for the year ended June 30, 2020, follow. (Any balance sheet figures are as at June 30, 2020.) Selling price $100 Wingers produced 18,000 Ending work in process 0 Total manufacturing overhead $15,000 Wage rate $8 per hour Machine hours used 9,000 Wages payable $20,000 Direct materials costs $10 per kilogram...

Blue Company in its first year of operations provides the following information related to one of...

Blue Company in its first year of operations provides the following information related to one of its available-for-sale debt securities at December 31, 2020. Amortized cost $51,700 Fair value 43,400 Expected credit losses 12,900 What is the amount of the credit loss that Blue should report on this available-for-sale security at December 31, 2020? Prepare the journal entry to record the credit loss, if any (and any other adjustment needed), at December 31, 2020. (Credit account titles are automatically indented...

Benny Company had a beginning balance on January 1, 2019 in Accounts Receivable of $200,000 and...

Benny Company had a beginning balance on January 1, 2019 in Accounts Receivable of $200,000 and a beginning credit balance in the Allowance for Doubtful Accounts of $4,000. During 2019, Drew sold $1,000,000 of goods on credit and collected $800,000. If Drew estimates that 2% of their ending accounts receivable will eventually not be collected, the adjusting journal entry for the Bad Debt Expense will include a credit to Allowance for Doubtful Accounts of A. none of the listed choices...

Blue Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of...

Blue Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,200 would have been the same under either the conventional retail system or the LIFO retail system. On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under...

Subjects