Question

The ABC partnership had net income of $100,000 for 2018. They simply allocate profits

and losses in the ratio 5:3:2. After completing the schedule of income distribution and closing the

12/31/2018 books, they discovered that $30,000 was spent on a piece of land in December 2018

that was expensed. They are still able to reopen the books, make financial accounting

adjustments, and revise any tax documents that were already prepared. Please provide 1) a

written explanation of what should happen in at least two coherent professional sentences, and 2)

the adjusting journal entry for financial accounting purposes prior to reclosing the books.

Answer 1

1) INCOME IS TO BE SHOWN LESS BY $ 30000 AND THE PARTNER WOULD HAVE TO PAY LESS FEDERAL TAX ON $ 30000 IN THEIR RATIOS OF 5:3:2.

2) ADJUSTING JOURNAL ENTRY

PARTNER'S INCOME  

A $ 15000 Dr.

B $ 9000 Dr.

C $ 6000 Dr.

TO PROFIT & LOSS ACCOUNT $ 30000