At the end of its first year of operations December 31 2016

At the end of its first year of operations, December 31, 2016, ABC

Company’s unadjusted accounts show the following:

The capital balance above represents each partner’s initial capital

investment. No closing entries have been recorded for net income (loss) or

drawings as yet.

Required:

a) Journalize the entry to record the division of net income for the year

ended December 31, 2016 under each of the following independent

assumptions: (Hint: you may find it helpful to prepare a schedule like

one of those shown in the textbook)

1. Net income is shared on the ratio of their initial investments.

Net income is $47,000.

2. Net income is $34,000. Bartlett and Cross are given salary

allowances of $15,000 and $10,000 respectively. The

remainder is shared equally.

3. Net income is $23,000. Each partner is allowed interest of 5%

on beginning capital balances. Cross is given a $15,000 salary

allowance. The remainder is shared equally.

b) Journalize the entry to close each partner’s drawings account.

c) Prepare a statement of partners’ equity for the year end under

assumption #3 in part (a) above.

Partner	Drawings	Capital
S. Abbott	$23,000	$50,000
D. Bartlett	14,000	30,000
R. Cross	10,000	20,000

Solution

Answer a-1 Allocation of Partnership Income S.Abbott D. Bartlett R. Cross Total Net Income                     -                       -        47,000.00 Allocated in partner - 5:3:2      23,500.00     14,100.00        9,400.00      47,000.00 Balance of Income                     -   Share of Partners      23,500.00     14,100.00        9,400.00 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 Income Summary      47,000.00 S.Abbott, Capital     23,500.00 D. Bartlett, Capital     14,100.00 R. Cross, Capital        9,400.00 (record to close the Income Summary Account) Answer a-2. Allocation of Partnership Income S.Abbott D. Bartlett R. Cross Total Net Income                     -                       -        34,000.00 Salary Allowances                     -       15,000.00     10,000.00      25,000.00 Balance of Income        9,000.00 Balance Allocated Equally        3,000.00        3,000.00        3,000.00        9,000.00 Balance of Income                     -   Share of Partners        3,000.00     18,000.00     13,000.00 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 Income Summary      34,000.00 S.Abbott, Capital        3,000.00 D. Bartlett, Capital     18,000.00 R. Cross, Capital     13,000.00 (record to close the Income Summary Account) Answer a-3. Allocation of Partnership Income S.Abbott D. Bartlett R. Cross Total Net Income                     -                       -        23,000.00 Salary Allowances                     -                       -       15,000.00      15,000.00 Balance of Income        8,000.00 Interest Allowances - 5%        2,500.00        1,500.00        1,000.00        5,000.00 Balance of Income        3,000.00 Balance Allocated Equally        1,000.00        1,000.00        1,000.00        3,000.00 Balance of Income                     -   Share of Partners        3,500.00        2,500.00     17,000.00 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 Income Summary      23,000.00 S.Abbott, Capital        3,500.00 D. Bartlett, Capital        2,500.00 R. Cross, Capital     17,000.00 (record to close the Income Summary Account) Answer b. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-17 S.Abbott, Capital      23,000.00 D. Bartlett, Capital      14,000.00 R. Cross, Capital      10,000.00 S.Abbott, Withdrawls     23,000.00 D. Bartlett, Withdrawls     14,000.00 R. Cross, Withdrawls     10,000.00 (Record the close of withdrawl accounts) Answer c-1. Capital Account Balances S.Abbott D. Bartlett R. Cross Total Intial Investments      50,000.00     30,000.00     20,000.00    100,000.00 Withdrawls    (23,000.00) (14,000.00) (10,000.00)    (47,000.00) Share of Income      23,500.00     14,100.00        9,400.00      47,000.00 Ending Balances      50,500.00     30,100.00     19,400.00    100,000.00 Answer c-2. Capital Account Balances S.Abbott D. Bartlett R. Cross Total Intial Investments      50,000.00     30,000.00     20,000.00    100,000.00 Withdrawls    (23,000.00) (14,000.00) (10,000.00)    (47,000.00) Share of Income        3,000.00     18,000.00     13,000.00      34,000.00 Ending Balances      30,000.00     34,000.00     23,000.00      87,000.00 Answer c-3. Capital Account Balances S.Abbott D. Bartlett R. Cross Total Intial Investments      50,000.00     30,000.00     20,000.00    100,000.00 Withdrawls    (23,000.00) (14,000.00) (10,000.00)    (47,000.00) Share of Income        3,500.00        2,500.00     17,000.00      23,000.00 Ending Balances      30,500.00     18,500.00     27,000.00      76,000.00