Question

McGill and Smyth have capital balances on January 1 of $56,000 and $36,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $24,000 for McGill and $12,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 70% by McGill and 30% by Smyth. (1) Prepare a schedule showing the distribution of net income, assuming net income is $90,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).) (2) Prepare a schedule showing the distribution of net income, assuming net income is $30,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).) Journalize the allocation of net income in each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order presented in the previous part.)

Answer 1

Answer:                              capital accounts                distribution

DETAILS                          McGill               Smyth            total           remaining

opening balance         $56000             $36000

net income                                                                  $90000        $90000

salaries                        $24000            $12000        -$36000        $54000

interest @ 10%             $5600               $3600          -$9200         $44800

Profit share 70 : 30%   $31360              $13440         -$44800          $0

closing balance         $116960             $65040        

DETAILS                     McGill                   Smyth            total              remaining

opening balance         $56000             $36000

net income                                                                  $30000           $30000

salaries                        $24000            $12000        -$36000          - $6000

interest @ 10%             $5600               $3600          -$9200           -$15200

loss share 70 : 30%     -$10640            -$4560          +$15200              $0

closing balance          $74960           $47040

JOURNAL ENTRIES

1 . Debit partnership summary income account $90000, credit capital accounts McGILL ; salary 24000, interest on capital 5600, profit share 31360. Symth ; salary 12000, interest on capital 3600, profit share 13440

2 . Debit Partnership  summary income account 30000 , credit Capital accounts McGill : salary 24000 , Smyth : 12000 , Interest on capital account McGill : 5600, Smyth 3600.

for loss sharing journal

Debit Capital accounts McGILL 10640, Smyth 4560 , Credit partnership summary account 15200

Explanation:

Answer 2

Answer:

Explanation:

Net income $90 000 000

salary allowance is the total of the two

$36000

Refer to McGrill as M and to Smyth as S

M=$24000

S=$12000

Interest $9200

M=($56000*0.1)=$5600

S=($36000*0.1)=$3600

Total income

M=$24000+$5600=$29600

S=$12000+$3600=$15600

So the distribution

$90000-$36000-$9200

=$44800

Then for M=$44800*0.7=31360

               S=$44800*0.3=$13440

total distribution

M=$31360+$29600=$60960

S=$13440+$15600=$29040

I income is $30 000000

($30000-$36000-$9200)

-$15200

M=-15200*0.7=-$10640

S=-$15200*0.3=-$4560

Total distributions

M=(-$10640+29600)=$18960

s=(-$4560+$15600)=$11040