Question

31A. Zheng invested $180,000 and Murray invested $280,000 in a partnership. They agreed to share incomes and losses by allowing a $80,000 per year salary allowance to Zheng and a $60,000 per year salary allowance to Murray, plus an interest allowance on the partners’ beginning-year capital investments at 10%, with the balance to be shared equally. Assuming net income for the current year is $145,000, the journal entry to allocate net income is:

31B. Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership’s capital balances are Caitlin, $138,000; Chris, $98,000; and Molly, $118,000. Paul is admitted to the partnership on July 1 with a 15% equity and invests $178,000. The balance in Caitlin’s capital account immediately after Paul’s admission is:

31C. Martin Company purchases a machine at the beginning of the year at a cost of $130,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 4 years with a $10,800 salvage value. The machine’s book value at the end of year 3 is:

Answer 1

Solution 31A:

Division of Income
Particulars	Zheng	Murray	Total
Total Income (Loss)			$145,000.00
Interest on capital	$18,000.00	$28,000.00	$46,000.00
Balance of Income (Loss)			$99,000.00
Salary to Partners	$80,000.00	$60,000.00	$140,000.00
Balance of Income (Loss)			-$41,000.00
Balance to be allocated equally	-$20,500.00	-$20,500.00	-$41,000.00
Total Share of Income	$77,500.00	$67,500.00	$145,000.00

Journal Entries
Event	Particulars	Debit	Credit
1	Income Summary Dr	$145,000.00
	To Zheng's capital		$77,500.00
	To Murray's capital		$67,500.00
	(To record allocation of income to partners)

Solution 31B:

Ratio of profit between Catlin, Chris and Molly = 3:4:3

Total capital after new capital introduced by PAul = ($138,000 + $98,000 + $118,000) + $178,000 = $532,000

Paul share in Partnership = 15%

Therefore required share of capital by Paul = $532,000 * 15% = $79,800

Bonus Capital introduced by Paul = $178,000 - $79,800 = $98,200

Bonus capital will be distributed in existing partner in ratio of 3:4:3

Catlin share = $98,200/3*10 = $29,460

Catlin;s capital account balance immdiately after Paul admission = $138,000 + $29,460 = $167,460

Solution 31C:

Depreciation rate SLM = 1/4 = 25%

Depreciation rate - DDB = 25%*2 = 50%

Depreciation Schedule - Double Declining Balance Method
Year	Asset Cost	Book Value	Depreciation Rate	Depreciation Expense for the year	Accumulated Depreciation	Book Value
0	$130,000
1		$130,000	50%	$65,000	$65,000	$65,000
2		$65,000	50%	$32,500	$97,500	$32,500
3		$32,500	50%	$16,250	$113,750	$16,250

Machine's book value at the end of year 3 = $16,250