Question

Is (Video) McGill and Smyth have capital balances on January 1 of $53,000 and $34,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $16,000 for McGill and $17,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 70% by McGill and 30% by Smyth. (1) Prepare a schedule showing the distribution of net income, assuming net income is $66,000. (If an amount reduces the account balance then enter with a negative son preceding the number of parenthesis 15,000(15.000).) DIVISION OF NET INCOME MCGIII Smyth Salary allowance Interest allowance Total salaries and interest Remaining income / deficiency Total division of net income

Answer 1

Case - I : Assuming Net Income $66,000

Statement Showing Distribution Income

Particulars	McGill ($)	Smyth ($)	Total ($)
Salary Allowance	16,000	17,000	33,000
Interest Allowance	5,300	3,400	8,700
	[$ 53,000*10%]	[$ 34,000*10%]
Total Salaries and Interest	21,300	20,400	41,700
Remaining Income / (Deficiency) [W.N-1]	17,010	7,290	24,300
Total Division Of Income	38,310	27,690	66,000

Working Note 1: [W.N-1]

Calculation of Remaining Income / Deficiency and distribution for the same:

Particulars	Amount ($)
Total Income	66,000
(-) Salary Allowances	33,000
(-) Interest Allowances	8,700
Remaining Income	24,300

Distribution of Remaining Income Among McGill and Smyth:

McGil : $17,010 [ $24,300*70%]

Smyth: $7,290 [ $24,300*30%]

Case - II : Assuming Net Income $27,000

Statement Showing Distribution of Net Income:

Particulars	McGill ($)	Smyth ($)	Total ($)
Salary Allowance	16,000	17,000	33,000
Interest Allowance	5,300	3,400	8,700
	[$ 53,000*10%]	[$ 34,000*10%]
Total Salaries and Interest	21,300	20,400	41,700
Remaing Income / (Deficiency) [W.N-2]	(10,290)	(4,410)	(14,700)
Total Division Of Income	11,010	15,990	27,000

Working Note 2: [W.N-2]

Calculation of Remaining Income / Deficiency and distribution for the same:

Particulars	Amount ($)
Total Income	27,000
(-) Salary Allowances	33,000
(-) Interest Allowances	8,700
Remaining Deficiency	(14,700)

Distribution of Remaining Deficiency among the Partners:

McGill : $10,290 [$14,700*70%]

Smyth: $4,410 [$14,700*30%]

Journal Entries for the Distribution of Net Income among the Partners

Case - I : Net Income $66,000:

Debits Credits

Profit & Loss Adjustment A/c Dr $66,000

To McGill Capital A/c $38,310   

To Smyth Caiptal A/c $27,690

(Being the net total income distributed among the partners after the Salary allowance and Interest allowances distribution)

Case - II : Net Income $27,000:

  Debits Credits

Profit & Loss Adjustment A/c Dr $27,000

To McGill Capital A/c $11,010   

To Smyth Caiptal A/c $15,990

(Being the net total income distributed among the partners after the Salary allowance and Interest allowances distribution)