Question

Ries. Bax, and Thomas invested $80,000, $112.000, and $128,000, respectively, in a partnership. Dans its first calendar year, the firm earned $249,000. 

Required 

Prepare the entry to close the firm's Income Summary account as of its December 31 year-end and to locate the $249,000 net income under each of the following separate assumptions,

 1. The partners did not agree on a plan and therefore share income equally.

 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 300, 0 0 Ries, $56,000 to Bax, and $80,000 to Thomas; granting 10% interest on the partners beginning capital investments, and sharing the remainder equally. 

Answer 1

(1) -- The partners did not agree on a plan and therefore share income equally.

Answer -

Date	General Journal	Debit ($)	Credit ($)
December 31	Income summary Ries, Capital [$249000/3] Bax, Capital [$249000/3] Thomas, Capital [$249000/3]	249000 - - -	- 83000 83000 83000

.

(2) -- The partners agreed to share income and loss in proportion to their initial investments.

Answer -

Date	General Journal	Debit ($)	Credit ($)
December 31	Income summary Ries, Capital [Refer working note] Bax, Capital [Refer working note] Thomas, Capital [Refer working note]	249000 - - -	- 62250 87150 99600

# Working note - Calculation of partners share of income -

Particulars	Explanation	Amount ($)
Ries share of income	(Partners' capital balance / Total partnership capital) * Net income = [$80000 / ($80000+$112000+$128000)] * $249000 = $62250	62250
Bax's share of income	(Partners' capital balance / Total partnership capital) * Net income = [$112000 / ($80000+$112000+$128000)] * $249000 = $87150	87150
Thomas share of income	(Partners' capital balance / Total partnership capital) * Net income = [$128000 / ($80000+$112000+$128000)] * $249000 = $99600	99600

.

(3) -- The partners agreed to share income and loss by providing annual salary allowances of $66000 to Ries, $56000 to Bax, and $80000 to Thomas; granting 10% interest on the partners’ beginning capital investments; and sharing the remainder equally.

Answer -

Date	General Journal	Debit ($)	Credit ($)
December 31	Income summary Ries, Capital [Refer working note] Bax, Capital [Refer working note] Thomas, Capital [Refer working note]	249000 - - -	- 79000 72200 97800

# Working note - Calculation of partners share of income -

	Particulars	Explanation	Ries ($)	Bax ($)	Thomas ($)	Total ($)
I.	Net income	Given in question	-	-	-	249000
II.	Salary allowances	Given in question	66000	56000	80000	-
III.	Interest allowances	Partners’ beginning capital * 10%	8000 [$80000*10%]	11200 [$112000*10%]	12800 [$128000*10%]	-
IV.	Total allowances	II + III	74000	67200	92800	234000
V.	Balance of income	I - IV	-	-	-	15000
VI.	Remainder shared equally	$15000 / 3	5000	5000	5000	15000
VII.	Balance of income	V - VI	-	-	-	0
Income of each partner		IV + VI	79000	72200	97800	-