Allocate income to partners Partnership Facts: 1. John, Alice and Dan are all ge

Question

Allocate income to partners Partnership Facts: 1. John, Alice and Dan are all general partners of a partnership. 2. John is the CEO of the partnership and is allocated a salary of $90,000 per year. 3. Alice is the CFO of the partnership and is allocated a salary of $72,000 per year. 4. Dan is not active in the partnership and is not allocated any salary. 5. All partners are allocated an interest credit from earnings of 5% of their capital account balance before any allocations. 6. The remaining profit or loss after the above allocations is split evenly three ways. 7. Capital account balance before allocations are as follows: John $150,000. Alice $120,000. Dan $258,000. 8. The net income before any allocations are made is $141,000. 9. Assume that no money is distributed at this time but earnings are allocated to partner capital accounts.

*Allocate the net income to partners based on the above partnership terms AND prepare allocation journal entries.

John Alice Dan Totals

Journal entries

Explanation / Answer

Particulars John Alice Dan Capital account balance before allocations 150000 120000 258000 Add: Allocation of salaries $78,333.33 $62,666.70 Total 228333.33 182666.7 258000 Allocation Salaries based on the their salary proprtionates Salary to John 141000*90000/(90000+72000) = $78,333.33 Salary to Alice 141000*72000/(90000+72000) = $62,666.70 Note: Total earnings are not enough to allocate salaries and interest. As prioroty of the liability first allocate salary to the partners. Journal entries Account title and explanation Debit Creit Salary to John $78,333.33 To John capital $78,333.33 To record allocation of salaryto the partners Salary to Alice $62,666.70 To Alice capital $62,666.70 To record allocation of salaryto the partners

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