Question

McGill and Smyth have capital balances on January 1 of $57,000 and $43,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $20,000 for McGill and $11,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 60% by McGill and 40% by Smyth.

a. Prepare a schedule showing the distribution of net income, assuming net income is $72,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).)

DIVISION OF NET INCOME
		McGill		Smyth		Total
Salary allowance		$enter a dollar amount		$enter a dollar amount		$enter a total for the row
Interest allowance		enter a dollar amount		enter a dollar amount		enter a total for the row
Total salaries and interest		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Remaining income / deficiency		enter a dollar amount		enter a dollar amount		enter a total for the row
Total division of net income		$enter a total amount		$enter a total amount		$enter a total amount

b. (2)

Prepare a schedule showing the distribution of net income, assuming net income is $27,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).)

DIVISION OF NET INCOME
		McGill		Smyth		Total
Salary allowance		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
Interest allowance		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total salaries and interest		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Remaining income / deficiency		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total division of net income		$enter a total amount		$enter a total amount		$enter a total amount

c. Journalize the allocation of net income in each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order presented in the previous part.)

No.	Account Titles and Explanation	Debit	Credit
1.	select an account title to allocate the net income in the first situation                                                                      Salaries ExpenseSmyth, CapitalAccounts ReceivableIncome SummaryMcGill, CapitalDrawingsAccounts PayableCashNet Income	enter a debit amount	enter a credit amount
	select an account title to allocate the net income in the first situation                                                                      Accounts ReceivableDrawingsIncome SummaryAccounts PayableNet IncomeSalaries ExpenseCashMcGill, CapitalSmyth, Capital	enter a debit amount	enter a credit amount
	select an account title to allocate the net income in the first situation                                                                      Net IncomeAccounts PayableSalaries ExpenseMcGill, CapitalSmyth, CapitalDrawingsIncome SummaryAccounts ReceivableCash	enter a debit amount	enter a credit amount
2.	select an account title to allocate the net income in the second situation                                                                      Accounts PayableAccounts ReceivableSmyth, CapitalIncome SummaryMcGill, CapitalDrawingsSalaries ExpenseCashNet Income	enter a debit amount	enter a credit amount
	select an account title to allocate the net income in the second situation                                                                      CashDrawingsSmyth, CapitalNet IncomeMcGill, CapitalAccounts ReceivableIncome SummaryAccounts PayableSalaries Expense	enter a debit amount	enter a credit amount
	select an account title to allocate the net income in the second situation                                                                      DrawingsAccounts ReceivableAccounts PayableNet IncomeSalaries ExpenseSmyth, CapitalMcGill, CapitalCashIncome Summary	enter a debit amount	enter a credit amount

Answer 1

1.Net Income $72,000

	McGill	Smyth	Total
Salary allowance	$20,000	$11,000	$31,000
Interest allowance	$ 5,700	$ 4,300	$10.000
Total salaries and interest	$25,700	$15,300	$41,000
Remaining income / deficiency	$18,600	$12,400	$31,000
Total division of net income	$44,300	$27,700	$72,000

2.Net Income $27,000

	McGill	Smyth	Total
Salary allowance	$20,000	$11,000	$31,000
Interest allowance	$ 5,700	$ 4,300	$10.000
Total salaries and interest	$25,700	$15,300	$41,000
Remaining income / deficiency	($8,400)	($5,600)	($14,000)
Total division of net income	$17,300	$9,700	$27,000