In: Accounting
Ries. Bax, and Thomas invested $80,000, $112.000, and $128,000, respectively, in a partnership. Dans its first calendar year, the firm earned $249,000.
Required
Prepare the entry to close the firm's Income Summary account as of its December 31 year-end and to locate the $249,000 net income under each of the following separate assumptions,
1. The partners did not agree on a plan and therefore share income equally.
2. The partners agreed to share income and loss in the ratio of their beginning capital investments,
3. The partners agreed to share income and loss by providing annual salary allowances of 300, 0 0 Ries, $56,000 to Bax, and $80,000 to Thomas; granting 10% interest on the partners beginning capital investments, and sharing the remainder equally.
(1) -- The partners did not agree on a plan and therefore share income equally.
Answer -
Date | General Journal | Debit ($) | Credit ($) |
December 31 |
Income summary Ries, Capital [$249000/3] Bax, Capital [$249000/3] Thomas, Capital [$249000/3] |
249000 - - - |
- 83000 83000 83000 |
.
(2) -- The partners agreed to share income and loss in proportion to their initial investments.
Answer -
Date | General Journal | Debit ($) | Credit ($) |
December 31 |
Income summary Ries, Capital [Refer working note] Bax, Capital [Refer working note] Thomas, Capital [Refer working note] |
249000 - - - |
- 62250 87150 99600 |
# Working note - Calculation of partners share of income -
Particulars | Explanation | Amount ($) |
Ries share of income |
(Partners' capital balance / Total partnership capital) * Net income = [$80000 / ($80000+$112000+$128000)] * $249000 = $62250 |
62250 |
Bax's share of income |
(Partners' capital balance / Total partnership capital) * Net income = [$112000 / ($80000+$112000+$128000)] * $249000 = $87150 |
87150 |
Thomas share of income |
(Partners' capital balance / Total partnership capital) * Net income = [$128000 / ($80000+$112000+$128000)] * $249000 = $99600 |
99600 |
.
(3) -- The partners agreed to share income and loss by providing annual salary allowances of $66000 to Ries, $56000 to Bax, and $80000 to Thomas; granting 10% interest on the partners’ beginning capital investments; and sharing the remainder equally.
Answer -
Date | General Journal | Debit ($) | Credit ($) |
December 31 |
Income summary Ries, Capital [Refer working note] Bax, Capital [Refer working note] Thomas, Capital [Refer working note] |
249000 - - - |
- 79000 72200 97800 |
# Working note - Calculation of partners share of income -
Particulars | Explanation | Ries ($) | Bax ($) | Thomas ($) | Total ($) | |
I. | Net income | Given in question | - | - | - | 249000 |
II. | Salary allowances | Given in question | 66000 | 56000 | 80000 | - |
III. | Interest allowances | Partners’ beginning capital * 10% |
8000 [$80000*10%] |
11200 [$112000*10%] |
12800 [$128000*10%] |
- |
IV. | Total allowances | II + III | 74000 | 67200 | 92800 | 234000 |
V. | Balance of income | I - IV | - | - | - | 15000 |
VI. | Remainder shared equally | $15000 / 3 | 5000 | 5000 | 5000 | 15000 |
VII. | Balance of income | V - VI | - | - | - | 0 |
Income of each partner | IV + VI | 79000 | 72200 | 97800 | - | |