Kim Ries, Tere Bax, and Josh Thomas invested $36,000, $52,000, and $60,000, resp
ID: 2379195 • Letter: K
Question
Kim Ries, Tere Bax, and Josh Thomas invested $36,000, $52,000, and $60,000, respectively, in a partnership. During its first calendar year, the firm earned $340,800.
Prepare the entry to close the firm’s Income Summary account as of its December 31 year-end and to allocate the $340,800 net income to the partners under each of the following separate assumptions:
(1) The partners have no agreement on the method of sharing income and loss
(2) The partners agreed to share income and loss in the ratio of their beginning capital investments.
(3) The partners agreed to share income and loss by providing annual salary allowances of $32,000 to Ries, $27,000 to Bax, and $39,000 to Thomas; granting 10% interest on the partners’ beginning capital investments; and sharing the remainder equally
Explanation / Answer
(1) The partners have no agreement on the method of sharing income and loss
In the absence of an agreement, they share the income equally.
They would each get 340,800/3 = 113,600.
Debit: Income summary 340,800
Credit: Kim Ries, Capital 113,600
Credit: Tere Bax, Capital 113,600
Credit: Josh Thomas, Capital 113,600
(2) The partners agreed to share income and loss in the ratio of their beginning capital investments.
Their beginning capital investments add up to 36,000 + 52,000 + 60,000 = 148,000.
Kim’s share would be 36,000/148,000 = 24.324%. Tere’s share would be 52/000/148,000 = 35.135%, and Josh’s share would be 60,000/148,000 = 40.541%.
Kim would get 0.24324*340,800 = $82,896.19
Tere would get 0.35135*340,800 = $119,740.08
Josh would get 0.40541*340,800 = $138,163.73
Debit: Income summary 340,800
Credit: Kim Ries, Capital 82,896.19
Credit: Tere Bax, Capital 119,740.08
Credit: Josh Thomas, Capital 138,163.73
(3) The partners agreed to share income and loss by providing annual salary allowances of $32,000 to Ries, $27,000 to Bax, and $39,000 to Thomas; granting 10% interest on the partners’ beginning capital investments; and sharing the remainder equally
Partner
Salary allowance
Interest
Shared remainder
Total
Kim Ries
32,000
3,600
76,000
111,600
Tere Bax
27,000
5,200
76,000
108,200
Josh Thomas
39,000
6,000
76,000
121,000
98,000
14,800
228,000
340,800
Debit: Income summary 340,800
Credit: Kim Ries, Capital 111,600
Credit: Tere Bax, Capital 108,200
Credit: Josh Thomas, Capital 121,000
Partner
Salary allowance
Interest
Shared remainder
Total
Kim Ries
32,000
3,600
76,000
111,600
Tere Bax
27,000
5,200
76,000
108,200
Josh Thomas
39,000
6,000
76,000
121,000
98,000
14,800
228,000
340,800
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