Lewis Wardell and Lewis Lomas own Lewis’ Antiques. Their partnership agreement provides for annual salary allowances of $200,000 for Wardell and $180,000 for Lomas, and interest of 10 percent on each partner’s invested capital at the beginning of the year. The remainder of the net income or loss is to be distributed 50 percent to Wardell and 50 percent to Lomas. The partners withdraw their salary allowances monthly. On January 1, 20X1, the capital account balances were Wardell, $600,000, and Lomas, $560,000. On December 15, 20X1, Lomas made a permanent withdrawal of $55,000. The net income for 20X1 was $640,000. Required: Prepare the general journal entry on December 15, 20X1, to record the permanent withdrawal by Lomas. Prepare the general journal entries on December 31, 20X1, to: Record the salary allowances for the year. Record the interest allowances for the year. Record the division of the balance of net income. Close the drawing accounts into the capital accounts, assuming that Wardell and Lomas have withdrawn their full salary allowances. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 20X1. Prepare a statement of partners’ equities showing the changes that took place in the partners’ capital accounts during 20X1. Analyze: By what percentage did Wardell’s capital account increase in fiscal year 20X1?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Lewis Wardell and Lewis Lomas own Lewis’ Antiques. Their partnership agreement provides for annual salary allowances of $200,000 for Wardell and $180,000 for Lomas, and interest of 10 percent on each partner’s invested capital at the beginning of the year. The remainder of the net income or loss is to be distributed 50 percent to Wardell and 50 percent to Lomas. The partners withdraw their salary allowances monthly. On January 1, 20X1, the capital account balances were Wardell, $600,000, and Lomas, $560,000. On December 15, 20X1, Lomas made a permanent withdrawal of $55,000. The net income for 20X1 was $640,000. Required: Prepare the general journal entry on December 15, 20X1, to record the permanent withdrawal by Lomas. Prepare the general journal entries on December 31, 20X1, to: Record the salary allowances for the year. Record the interest allowances for the year. Record the division of the balance of net income. Close the drawing accounts into the capital accounts, assuming that Wardell and Lomas have withdrawn their full salary allowances. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 20X1. Prepare a statement of partners’ equities showing the changes that took place in the partners’ capital accounts during 20X1. Analyze: By what percentage did Wardell’s capital account increase in fiscal year 20X1?

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