Question

Farmer and Taylor formed a partnership with capital contributions of $265,000 and $315,000, respectively. Their partnership agreement calls for Farmer to receive a $83,000 per year salary. The remaining income or loss is to be divided equally. Assuming net income for the current year is $213,000, the journal entry to allocate net income is:

Multiple Choice

A - Debit Income Summary, $213,000; Credit Farmer, Capital, $106,140; Credit Taylor, Capital, $28,860.

B - Debit Income Summary, $213,000; Credit Farmer, Capital, $106,500; Credit Taylor, Capital, $106,500.

C - Debit Income Summary, $213,000; Credit Taylor, Capital, $148,000; Credit Farmer, Capital, $65,000.

D - Debit Income Summary, $213,000; Credit Farmer, Capital, $182,000; Credit Taylor, Capital, $31,000.

E - Debit Income Summary, $213,000; Credit Farmer, Capital, $148,000; Credit Taylor, Capital, $65,000.

Answer 1

A B с 1 Net income $213.000 2 Farmer's salary $83,000 3 Remaining income $130,000 4 Farmer's share $65,000 5 Taylor's share $65,000 6 7 Farmer's total share $148,000 8 Taylor's total share $65,000 9 10 Journal Entry 11 Account Titles and Explanation Debit Credit 12 Income summary $213,000 13 Farmer's capital $148.000 14 Taylor's capital $65,000 15 (To record income share) 16 Thus, the correct option is 'E. Debit Income Summary, $213,000; Credit Farmer, 17 Capital, $148,000; Credit Taylor, Capital, $65,000'. Calculations are shown below: A B с 1 Net income 213000 2 Farmer's salary 83000 3 Remaining income =B1-B2 4 Farmer's share =B3/2 5 Taylor's share =B3/2 6 7 Farmer's total share =B2+B4 8 Taylor's total share =B5 9 10 Journal Entry 11 Account Titles and Explanation Debit Credit 12 Income summary =C13+C14 13 Farmer's capital =B7 14 Taylor's capital =B8 15 (To record income share) 16 Thus, the correct option is 'E. Debit Income Summary, $213,000; Credit Farmer, 17 Capital, $148,000; Credit Taylor, Capital, $65,000'.