Question

Farmer and Taylor formed a partnership with capital contributions of $250,000 and $300,000, respectively. Their partnership agreement calls for Farmer to receive a $90,000 per year salary. The remaining income or loss is to be divided equally. Assuming net loss for the current year is $25,000, the journal entry to allocate the net loss is:
a. Debit Income Summary, $31,000; Debit Farmer, Capital, $35,500; Credit Taylor, Capital, $66,500.
b. Debit Income Summary, $31,000; Credit Farmer, Capital, $15,500; Credit Taylor, Capital, $15,500.
c. Debit Taylor, Capital, $66,500; Credit Income Summary, $31,000; Credit Farmer, Capital, $35,500.
d. Debit Income Summary, $31,000; DebitTaylor, Capital, $35,500; Credit Taylor, Capital, $66,500.
e. Debit Income Summary, $31,000; Credit Taylor, Capital, $15,500; Credit Farmer, Capital, $15,500.

Answer 1

Answer:

Taylor's capital $57,500

     To Income summary  $25,000

     To Farmer's capital  $32,500

(Being the allocation of the net loss is recorded)

Explanation:

Before passing the journal entry we need to do the calculations which is shown below:

Since the net loss for the current year is $25,000

And, the amount receiver per year is $90,000

So , the total amount is

= $25,000 + $90,000

= $115,000

Now it is equally dividend i.e $57,500 each

So, the farmer amount credited by  

= $90,000 - $57,500

= $32,500

And, the taylor account debited by  $57,500

So, the journal entry is

Taylor's capital $57,500

     To Income summary  $25,000

     To Farmer's capital  $32,500

(Being the allocation of the net loss is recorded)

This is the answer but the same is not provided in the given options