Chapter 12, Problem 4E

(a)

To determine

Partnership: An association of more than one party with the objective of sharing profit and losses is called Partnership. It is one form of business organization where risk is shared among two or more partners for their mutual benefit. The liability of partners is unlimited in partnership. Partnership can be easily formed because the process is simples and there less complexities in legal rules.

Distribution of Income: In a partnership, the income of is distributed by the way of salaries, interest on the partners capital and balance income upon the agreed ratios. It is the sharing of the net income of partnership among partners.

Journalizing: It is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the amounts are posted to the relevant ledger accounts.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

To prepare: A schedule showing the distribution of net income.

(b)

To determine

To record: The allocation of net income.