At the end of its first year of operations on December 31, 2019, CAP Company’s accounts show the following. Partner Drawing Capital Charlies $15,000 $40,000 Andrew 10,000 25,000 Patrick 5,000 15,000 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. (Find the attached image for better view) 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 an $20,000 salary allowance. The remainder is shared equally.
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.
At the end of its first year of operations on December 31, 2019, CAP Company’s accounts show the following.
Partner Drawing Capital
Charlies $15,000 $40,000
Andrew 10,000 25,000
Patrick 5,000 15,000
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.
(Find the attached image for better view)
Instruction
(a)
(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 an $20,000 salary allowance. The remainder is shared equally.
(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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