P12-2B At the end of its rst year of operations on December 31, 2017, RKC Compan

Question

P12-2B At the end of its rst year of operations on December 31, 2017, RKC Company’s accounts show the following. Partner Drawings Capital Riles $15,000 $40,000 Kinder 10,000 25,000 Crifui 5,000 15,000 Flott Company $30,000 4,000 The capital balance represents each partner’s initial capital investment. Therefore, net income or net loss for 2017 has not been closed to the partners’ capital accounts. Instructions (a) Journalize the entry to record the division of net income for 2017 under each of the independent assumptions shown below. (1) Net income is $50,000. Income is shared 5:3:2. (2) Net income is $43,000. Riles and Kinder are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally. (3) Net income is $34,000. Each partner is allowed interest of 10% on beginning cap- ital balances. Riles is given a $20,000 salary allowance. The remainder is shared equally. (b) Prepare a schedule showing the division of net income under assumption (3) above. (c) Prepare a partners’ capital statement for the year under assumption (3) above.

Explanation / Answer

a 1 Income Summary 50000 Riles capital 25000 Kinder Capital 15000 Crifui Capital 10000 2 Salary allowance 25000 Riles capital 15000 Kinder Capital 10000 Income Summary 18000 Riles capital 6000 Kinder Capital 6000 Crifui Capital 6000 3 Interest on capital 8000 Riles capital 4000 Kinder Capital 2500 Crifui Capital 1500 Salary allowance 20000 Riles capital 20000 Income Summary 6000 Riles capital 2000 Kinder Capital 2000 Crifui Capital 2000 b schedule showing the division of net income under assumption (3) above Riles Kinder Crifui   total salary 20000 20000 interest 4000 2500 1500 8000 remaining income 2000 2000 2000 6000 total 26000 4500 3500 34000 c partners’ capital statement for the year under assumption (3) above Riles Kinder Crifui   total capital 40000 25000 15000 80000 net income 26000 4500 3500 34000 Less:drawings -15000 -10000 -5000 -30000 total 51000 19500 13500 84000

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