At the end of its first year of operations on December 31, 2019, CAP Company’s accounts show the following. PartnerDrawing ($)Capital ($)Charlies15,00040,000Andrew10,00025,000Patrick5,00015,000 The capital balance represents each partner’s initial capital investment. Therefore, net income or net loss for 2019 has not been closed to the partners’ capital accounts. Instruction (a) Journalize the entry to record the division of net income for 2019 under each of the independent assumptions shown on the following: (1) Net income is $50,000. Income is shared 5:3:2. (2) Net income is $40,000. Charlies and Andrew are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally. (3) Net income is $37,000. Each partner is allowed interest of 10% on beginning capital balances. Charlies is given a $20,000 salary allowance. The remainder is shared equally. No.Details$$1Income account50,000 Charlies capital account (50,000 x 5/10) 25,000 Andrew capital account (50,000 x 3/10) 15,000 Patrick capital account (50,000 x 2/10) 10,000 2Partner salary account25,000 Charlies capital account 15,000 Andrew capital account 10,000 Income account (40,000-25,000)15,000 Charlies capital account (15,000/3) 5,000 Andrew capital account (15,000/3) 5,000 Patrick capital account (15,000/3) 5,000 3Interest on capital account8,000 Charlies capital account 4,000 Andrew capital account 2,500 Patrick capital account 1,500 Salary Account20,000 Charlies capital account 20,000 Income Account17,000 Charlies capital account (17,000/3) 5,666 Andrew capital account (17,000/3) 5,667 Patrick capital account (17,000/3) 5,667 (b) Prepare a schedule showing the division of net income under assumption (3) above. (c) Prepare a partners’ capital statement for the year under assumption (3) above.
At the end of its first year of operations on December 31, 2019, CAP Company’s accounts show the following. PartnerDrawing ($)Capital ($)Charlies15,00040,000Andrew10,00025,000Patrick5,00015,000 The capital balance represents each partner’s initial capital investment. Therefore, net income or net loss for 2019 has not been closed to the partners’ capital accounts. Instruction (a) Journalize the entry to record the division of net income for 2019 under each of the independent assumptions shown on the following: (1) Net income is $50,000. Income is shared 5:3:2. (2) Net income is $40,000. Charlies and Andrew are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally. (3) Net income is $37,000. Each partner is allowed interest of 10% on beginning capital balances. Charlies is given a $20,000 salary allowance. The remainder is shared equally. No.Details$$1Income account50,000 Charlies capital account (50,000 x 5/10) 25,000 Andrew capital account (50,000 x 3/10) 15,000 Patrick capital account (50,000 x 2/10) 10,000 2Partner salary account25,000 Charlies capital account 15,000 Andrew capital account 10,000 Income account (40,000-25,000)15,000 Charlies capital account (15,000/3) 5,000 Andrew capital account (15,000/3) 5,000 Patrick capital account (15,000/3) 5,000 3Interest on capital account8,000 Charlies capital account 4,000 Andrew capital account 2,500 Patrick capital account 1,500 Salary Account20,000 Charlies capital account 20,000 Income Account17,000 Charlies capital account (17,000/3) 5,666 Andrew capital account (17,000/3) 5,667 Patrick capital account (17,000/3) 5,667 (b) Prepare a schedule showing the division of net income under assumption (3) above. (c) Prepare a partners’ capital statement for the year under assumption (3) above.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Question
At the end of its first year of operations on December 31, 2019, CAP Company’s accounts show the following. PartnerDrawing ($)Capital ($)Charlies15,00040,000Andrew10,00025,000Patrick5,00015,000 The capital balance represents each partner’s initial capital investment. Therefore, net income or net loss for 2019 has not been closed to the partners’ capital accounts. Instruction (a) Journalize the entry to record the division of net income for 2019 under each of the independent assumptions shown on the following: (1) Net income is $50,000. Income is shared 5:3:2. (2) Net income is $40,000. Charlies and Andrew are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally. (3) Net income is $37,000. Each partner is allowed interest of 10% on beginning capital balances. Charlies is given a $20,000 salary allowance. The remainder is shared equally. No.Details$$1Income account50,000 Charlies capital account (50,000 x 5/10) 25,000 Andrew capital account (50,000 x 3/10) 15,000 Patrick capital account (50,000 x 2/10) 10,000 2Partner salary account25,000 Charlies capital account 15,000 Andrew capital account 10,000 Income account (40,000-25,000)15,000 Charlies capital account (15,000/3) 5,000 Andrew capital account (15,000/3) 5,000 Patrick capital account (15,000/3) 5,000 3Interest on capital account8,000 Charlies capital account 4,000 Andrew capital account 2,500 Patrick capital account 1,500 Salary Account20,000 Charlies capital account 20,000 Income Account17,000 Charlies capital account (17,000/3) 5,666 Andrew capital account (17,000/3) 5,667 Patrick capital account (17,000/3) 5,667 (b) Prepare a schedule showing the division of net income under assumption (3) above. (c) Prepare a partners’ capital statement for the year under assumption (3) above.
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