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.

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

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