Question

Sharp and Townson had capital balances of $60,000 and $120,000, respectively, on January 1 of the current year. On May 8, Sharp invested an additional $10,000 in the partnership. During the year, Sharp and Townson withdrew $25,000 and $45,000, respectively. The revenue account at the end of the year had a balance of $600,000, and the expense account had a balance of $510,000. Sharp and Townson have agreed to split net income on a 2:1 basis.

a. Prepare the statement of partnership equity for the current year. If an amount box does not require an entry, leave it blank.

  b. Journalize the entries to close the revenue and expense accounts and the drawing accounts. If an amount box does not require an entry, leave it blank.

Answer 1

Answer- a-Statement of partnership equity for the current year:-

	Sharp	Townson	Total
Capital, January 1	$60,000	$120,000	$180,000
Additional Investment during the year	$10,000	-	$10,000
	$70,000	$120,000	$190,000
Net Income for the year (WN1)	$60,000	$30,000	$90,000
	$130,000	$150,000	$280,000
Withdrawals during the year	$25,000	$45,000	$70,000
Capital, December 31	$105,000	$105,000	$210,000

Net income for the year= Total revenue- Total expenses

=$600,000-$510,000

=$90,000

Share of Sharp= $90,000*2/3= $60,000

Share of Townson= $90,000*1/3= $30,000

b-Journal Entry:-

Date	Account Title and Explanation	Debit	Credit
	Service Revenue	$600,000
	Income Summary		$600,000
	(To close revenue account)
	Income Summary	$600,000
	Expenses		$600,000
	(To close expenses account)
	Income Summary	90,0000
	Sharp, Capital		60,000
	Townson, Capital		30,000
	(To record income credited to capital account)
	Sharp,Capital	25,000
	Townson, Capital	45,000
	Sharp,Drawing		25,000
	Townson, Drawing		45,000
	(To close drawing account)