Question

The Scott Stewart and Rick Smith Partnership earned a net income of $90,000 for the current year. Beginning capital balances were$70,000 for Stewart and $140,000 for Smith. Prepare the closing entries to transfer net income to the partners' capital accounts based on the following independent net income agreements.a) No mention of net income agreement.b) Interest on beginning capital balances of 12%, balance divided in a ratio of 3:2, respectively.c) Interest on beginning capital balances of 10%, secondly $45,000 to Stewart and $50,000 to Smith based on service and the balance divided equally. Please post process and not just the answer. I already have the answer but I don't get it.

Answer 1

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Part a.	Since nothing is mentioned about Net income sharing, it will be distributed between both the partners.
	Share of Scott Stewart	90000/2	$ 45,000
	Share of Rick Smith	90000/2	$ 45,000
Entry:
Date/Event	Account	Debit	Credit
a	Income Summary	$ 90,000
	Scott Stewart, Capital		$ 45,000
	Rick Smith, Capital		$ 45,000
	(Being income distribution to partners recorded)
Part b.	Interest on Capital 12% and Balance in 3:2
		Stewart	Smith	Total
	Interest on Beginning Capital (70000*12% and 140000*12%)	$    8,400	$ 16,800	$ 25,200
	Balance income 90000-25200=64800 in 3:2	$ 38,880	$ 25,920	$ 64,800
	64800*3/5 and 64800*2/5
	Total Income distribution	$ 47,280	$ 42,720	$ 90,000
Entry:
Date/Event	Account	Debit	Credit
b	Income Summary	$ 90,000
	Scott Stewart, Capital		$ 47,280
	Rick Smith, Capital		$ 42,720
	(Being income distribution to partners recorded)
Part c.	Interest on Capital 10%, Service Based and Balance Equally
		Stewart	Smith	Total
	Interest on Beginning Capital (70000*10% and 140000*10%)	$    7,000	$ 14,000	$ 21,000
	Based on Service	$ 45,000	$ 50,000	$ 95,000
	Balance Loss Allocation:
Net Income	$                                                                                          90,000
Less: Interest	$                                                                                         -21,000
Less: Service based	$                                                                                         -95,000
Remaining Loss	$                                                                                         -26,000
	$26,000 Loss to be distributed Equally	$ -13,000	$ -13,000	$ -26,000
	Total Income distribution	$ 39,000	$ 51,000	$ 90,000
Entry:
Date/Event	Account	Debit	Credit
b	Income Summary	$ 90,000
	Scott Stewart, Capital		$ 39,000
	Rick Smith, Capital		$ 51,000
	(Being income distribution to partners recorded)