Question

Carpenter, Kneller, and Hartley are partners.

Their Capital account balances were $35,000, $30,000, and $24,000, respectively, at the beginning of the current fiscal year.

The partnership agreement provides for an allowance of interest at the rate of 6% on the capital balances at the beginning of the year, and salary allowances of $8,000, $11,000, and $12,000, respectively.

The remaining partnership net income is to be divided 371/2% / 371/2% / 25%.

1. If the net income for that year was $63,460, the amount to be distributed to the partners for the year, after providing for salaries and interest on capital balances, is: Can you please show me how to calculate this?

A. $6,780.

C. $27,120.

B. $10,170.

D. $36,340.

2. If you assume a net income of $30,700, by what amount would Hartley’s capital account be increased as a result of the net income distribution? Can you please me how to calculate this?

A. $14,850

C. $12,030

B. $13,440

D. $10,590

3. How would you record the general journal entry to distribute the net income of a partnership?

A. As a debit to the Cash account and credits to the partners’ Capital accounts

B. As debits to the partners’ Capital accounts and a credit to Cash

C. As a debit to the Income Summary account and credits to the partners’ Capital accounts D. As debits to the partners’ Capital accounts and a credit to the Income Summary account

Answer 1

1.

Carpenter, Kneller, and Hartley are partners.

Their Capital account balances were $35,000, $30,000, and $24,000, respectively, at the beginning of the current fiscal year.

The partnership agreement provides for an allowance of interest at the rate of 6% on the capital balances at the beginning of the year, and salary allowances of $8,000, $11,000, and $12,000, respectively.

Interest on Carpenter's capital = 35,000 x 6%

= $2,100

Interest on Kneller's capital = 30,000 x 6%

= $1,800

Interest on Hartley's capital = 24,000 x 6%

= $1,440

If the net income for that year was $63,460, the amount to be distributed to the partners for the year, after providing for salaries and interest on capital balances is = Net income - Salaries to partners - Interest on partners' capitals

= 63,460 - (8,000 + 11,000 + 12,000) - (2,100 + 1,800 + 1,440)

= 63,460 - 31,000 - 5,340

= $27,120

Correct option is (C)

2.

Net income = $30,700

If the net income for that year was $30,700, the amount to be distributed to the partners for the year, after providing for salaries and interest on capital balances is = Net income - Salaries to partners - Interest on partners' capitals

= 30,700 - (8,000 + 11,000 + 12,000) - (2,100 + 1,800 + 1,440)

= 30,700 - 31,000 - 5,340

= - $5,640

Hartley will get share of loss of = 5,640 x 25%

= $1,410

Hartley will get a total of salary, interest on capital and share of loss = 12,000 + 1,440 - 1,410

= $12,030

Hartley’s capital account will be increased as a result of the net income distribution by $12,030

Correct option is (C)

3.

The general journal entry to distribute the net income of a partnership is:

As a debit to the Income Summary account and credits to the partners’ Capital accounts

Correct option is (C)

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