Question

Wallace and Simpson formed a partnership with Wallace contributing $96,000 and Simpson contributing $76,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. The partnership had income of $215,000 for its first year of operation. When the Income Summary is closed, the journal entry to allocate partner income is: (Do not round intermediate calculations.)

Answer 1

Answer:

Dr Income summary 215,000

    Cr Wallace, capital 120,000

    Cr Simpson, capital 95,000

Explanation:

When a business has made a profit, the income summary account must have a debit balance before closing it. That way, when you close it, you credit the income summary account and debit the retained earnings or capital accounts in this case.

Wallace = (96 / 172) x $215,000 = $120,000

Simpson = (76 / 172) x $215,000 = $95,000