Question

McGill and Smyth have capital balances on January 1 of $40,000 and $30,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $15,000 for McGill and $10,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 60% by McGill and 40% by Smyth.

Prepare a schedule showing the distribution of net income, assuming net income is $65,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).)

DIVISION OF NET INCOME
		McGill		Smyth		Total
Salary allowance		$		$		$
Interest allowance
Total salaries and interest
Remaining income / deficiency
Total division of net income		$		$		$

Prepare a schedule showing the distribution of net income, assuming net income is $20,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).)

DIVISION OF NET INCOME
		McGill		Smyth		Total
Salary allowance		$		$		$
Interest allowance
Total salaries and interest
Remaining income / deficiency
Total division of net income		$		$		$

Journalize the allocation of net income in each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order presented in the previous part.)

Answer 1

• [1]

DIVISION OF NET INCOME	McGill	Smyth	Total
Salary allowance	$15,000	$10,000	$25,000
Interest allowance	$4,000	$3,000	$7,000
Total salaries and interest	$19,000	$13,000	$32,000
Remaining income / deficiency [65000 - 32000]	$19,800	$13,200	$33,000
Total division of net income	$38,800	$26,200	$65,000

No	Accounts title	Debit	Credit
1	Income Summary	$65,000
	McGill, Capital		$38,800
	Smyth, Capital		$26,200
	(Net Income distributed)

• [2]

DIVISION OF NET INCOME	McGill	Smyth	Total
Salary allowance	$15,000	$10,000	$25,000
Interest allowance	$4,000	$3,000	$7,000
Total salaries and interest	$19,000	$13,000	$32,000
Remaining income / deficiency [20000 - 32000]	($7,200)	($4,800)	($12,000)
Total division of net income	$11,800	$8,200	$20,000

No	Accounts title	Debit	Credit
1	Income Summary	$20,000
	McGill, Capital		$11,800
	Smyth, Capital		$8,200
	(Net Income distributed)