Question

McGill and Smyth have capital balances on January 1 of $46,000 and $38,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $25,000 for McGill and $20,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 70% by McGill and 30% by Smyth.

(1) Prepare a schedule showing the distribution of net income, assuming net income is $79,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).)

(2) Prepare a schedule showing the distribution of net income, assuming net income is $21,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).)

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