Question
In: Accounting
During their first year of operations, the partnership earned $140,000.
E12-16 Allocating profits and losses to the partners
Polacco and Walsh have formed a partnership. During their first year of operations, the partnership earned $140,000. Their profit-and-loss-sharing agreement states that, first, each partner will receive 10% of their capital balances. The second level is based on services, with $25,000 to Polacco and $15,000 to Walsh. The remainder then will be shared 4:1 between Polacco and Walsh, respectively.
Requirements
1. Calculate the amount of income each partner will receive under their profit-and- loss-sharing agreement assuming Polacco's capital balance is $78,000 and Walsh's capital balance is $78,000.
2. Journalize the entry to close the Income Summary account for the year.
Solutions
Expert Solution
1.
| Polacco | Walsh | Total | |
| Net income | $140,000 | ||
| 10% of capital | $7,800 | $7,800 | (15,600) |
| Salary | 25,000 | 15,000 | (40,000) |
| 84,400 | |||
| Allocation of remaining balance | 67,520 | 16,880 | (84,400) |
| Total | $100,320 | $39,680 | $0 |
| General Journal | Debit | Credit |
| Income summary | $140,000 | |
| Polacco, capital | $100,320 | |
| Walsh, capital | 39,680 |
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