QUESTION 1 (15 POINTS) Smith, Jones and Sanders have capital balances of $ 25,00

ID: 2572709 • Letter: Q

Question

QUESTION 1 (15 POINTS) Smith, Jones and Sanders have capital balances of $ 25,000, $ 35,000 and $40,000, respectively. The partners share profits and losses as follows The first $ 15,000 is divided based on the partners' capital balances at interest rate of 15%. The next $45,000 is based on services, shared equally by Smith and Sanders. Jones does not receive a salary allowance. The remainder is divided equally a. b. c. REQUIREMENTS 1. Compute each partners' share of the $90,000 net income for the year. 2. Journalize the closing entry to allocate net income for the year.

Explanation / Answer

Particulars

Smith

Jones

Sanders

Opening Capital Balance (A)

25000

35000

40000

Interest on Capital (15000) (B)

25000*15% = 3750

35000*15% = 5250

40000*15% = 6000

Salary allowance (45000) (C

45000/2 = 22500

Remainder (90000-15000-45000)=30000 (D)

30000/3 = 10000

Each partner share’s of 90000 (B+C+D)

36250

37750

16000

Net Income = 90000 – 15000 – 45000 = 30000

Journal entry for allocation of net income:

Partners’ profit and loss DR 30000

Smith’s Capital CR 10000

Jones Capital CR 10000

Sanders Capital CR 10000