Question

Partnerships Summers and Winters formed a partnership on January 1. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters contributed $30,000 cash and inventory with a market value of $80,000. Prepare the journal entry to record the partners' contributions to the partnership Date Account Debit Credit Partnership net income for year 1 and year 2 was $75,000 and $120,000, respectively. 1. Determine each partner's share of the net income for each year, assuming each of the following independent situations: (a) Income is divided equally (b) Income is divided based on a 2:1 ratio (Summers: Winters). (c) Income is divided based on the ratio of the partners' original capital investments (d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be divided equally! Use the worksheets on the following page to calculate net income allocated to each partner.

Answer 1

Answer-Journal Entry

Date	Account Title and Explanation	Debit ($)	Credit ($)
Jan.1	Cash ($90,000+$30,000)	120,000
	Equipment	60,000
	Inventory	80,000
	Summers' Capital		150,000
	Winters' Capital		110,000
	(To record cash and assets contributed by partners)

a-

Year 1	Summers	Winters	Total
Total Income $75,000 (Divided equally)	$37,500	$37,500	$75,000

a-

Year 2	Summers	Winters	Total
Total Income $120,000 (Divided equally)	$60,000	$60,000	$120,000

b-

Year 1	Summers	Winters	Total
Total Income $75,000 (Divided 2:1)	$50,000	$10,000	$75,000

b-

Year 2	Summers	Winters	Total
Total Income $120,000 (Divided 2:1)	$80,000	$40,000	$120,000

c-

Year 1	Summers	Winters	Total
Total Income $75,000 (Divided 15:11)	$43,269	$31,731	$75,000

Capital Invested by partners= Summers: Winters

=$150,000: $110,000

Ratio= 15:11

c-

Year 2	Summers	Winters	Total
Total Income $120,000 (Divided 15:11)	$69,231	$50,769	$120,000

d-

Year 1	Summers	Winters	Total
Interest on Partner's Capital	$18,000 ($150,000*12%)	$13,200 ($110,000*12%)	$31,200
Salary Allowances	$30,000	$25,000	$55,000
Total Receipts of partners	$48,000	$38,200	$86,200
Loss	($5,600)	($5,600)	$11,200
Total Income $75,000	$42,400	$32,600	$75,000

There will be loss after distributing interest on capital and salary allowances to partners. that loss will be distributed by each partner too.

$86,200-$75,000= $11,200

$11,200/2= $5,600 each

d-

Year 2	Summers	Winters	Total
Interest on Partner's Capital	$18,000 ($150,000*12%)	$13,200 ($110,000*12%)	$31,200
Salary Allowances	$30,000	$25,000	$55,000
Total Receipts of partners	$48,000	$38,200	$86,200
Remaining Profit ($120,000-$86,200= $33,800) ($33,800/ 2= $16,900)	$16,900	$16,900	$33,800
Total Income $120,000	$64,900	$55,100	$120,000