Sally Cook, Lin Xi, and Sami Bruce formed the CXB Partnership by making capital contributions of
$169,750, $121,250, and $194,000, respectively. They predict annual partnership net income of $270,000
and are considering the following alternative plans of sharing income and loss: (a) equally; (b) in the ratio
of their initial capital investments; or (c) salary allowances of $40,000 to Cook, $29,000 to Xi, and
$42,000 to Bruce; interest allowances of 12% on their initial capital investments; and the balance shared
equally.
Required
1. Prepare a table with the following column headings.
Use the table to show how to distribute net income of $270,000 for the calendar year under each of
the alternative plans being considered. (Round answers to the nearest whole dollar.)
2. Prepare a statement of partners’ equity showing the allocation of income to the partners assuming
they agree to use plan (c), that income earned is $124,500, and that Cook, Xi, and Bruce withdraw
$19,000, $26,000, and $36,000, respectively, at year-end.
3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c)
and that net income is $124,500. Also close the withdrawals accounts.
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