Question

journalize the allocation of net income in each of the situations above.

Exercise 12-4 (Part Level Submission) McGill and Smyth have capital balances on January 1 of $41,000 and $34,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $25,000 for McGill and $17,000 for Smyth, (2) interest at 12% on beginning capital balances, and (3) remaining income or loss to be shared 60% by McGill and 40% by Smyth. (a) Your answer is correct. (1) Prepare a schedule showing the distribution of net income, assuming net income is $85,000. (If an amount reduces the account balance the enter with a negative sin preceding the number or parenthesis, c. 15,000. (15,000).) DIVISION OF NET INCOME MOGIN Smyth Total Salary allowance 250001 17000 42000 Interest allowance 4920 4080 9000 Total salaries and interest 29920 21080 510001 Remaining income / deficiency 204001 13600 34000 50320 Total division of net income 85000 34680 (2) Prepare a schedule showing the distribution of net income, assuming net income is $23,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. 15,000,(15,000).)

Answer 1

12-4

c)Journalise allocation of Net income

		Debit	Credit
1)	Income Summary	$85000
	McGill Capital		$50320
	Smyth		$34680
	( To record Distribution of Net Income)
2)	Income Summary	$23000
	McGill Capital		$13120
	Smyth Capital Account		$9880
	(To Record Distribution of Net Income )

1)Entry will be for Net Income , based on the Effect of Interest , Salary , and remaining income or loss ratio .

2) Income Statement at the end Net income is distributed to Partner as per the term decided , hence the income are adjusted accordingly .

3) As there is difficiency in (b) part , the salary and Interest on capital distribution will be reduce by the amount of deficiency which will be share in the ratio of 60:40 .

4) Hence from Income summary net income will be transfer based on all the three requirement of Income Distribution and the defficiency or profit contribution will be adjusted in Salary and interest .