Question

1. Southern Skies Co. had beginning capital balances on January 1, 2014, as follows: Patty Sharp $30,000 and Jim O'Connor $25,000. During the year, drawings were Sharp $15,000 and O'Connor $8,000. Net income was $40,000, and the partners share income equally.

Instructions

Prepare the partners' capital statement for the year.

Southern Skies Company
Partners’ Capital Statement

2. The Fig & Olive Co. reports net income of $24,000. Interest allowances of 10% on Fig’s beginning capital balance of $30,000 and Olive’s beginning capital balance of $50,000. Partner salary allowances are Fig $18,000 and Olive $10,000 and the remainder is shared equally.

Instructions

Indicate the division of net income to each partner, and prepare the entry to distribute the net income.

Division of Net Income
	Fig	Olive	Total

Answer 1

1.

SOUTHERN SKIES COMPANY

Partners’ Capital Statement

	Sharp	O’Connor	Total
Beginning Capital	$30,000	$25,000	$55,000
Add: Net Income	$20,000	$20,000	$40,000
	$50,000	$45,000	$95,000
Less: Drawings	$15,000	$8,000	$23,000
Ending Capital	$35,000	$37,000	$72,000

2. Division of Net Income

	Fig	Olive	Total
Salary allowance	$18,000	$10,000	$28,000
Interest allowance on partners’ capital	$3,000	$5,000	$8,000
Total salaries and interest	$21,000	$15,000	$36,000
Remaining income, ($12,000) ($24,000 – $36,000)
Fig ($12,000 × 50%)	($6,000)
Olive ($12,000 × 50%)		($6,000)
Total remainder			($12,000)
Total division of net income	$15,000	$9,000	$24,000

The entry to record the division of net income is:

General Journal	Debit	Credit
Income Summary	$24,000
Fig, Capital		$15,000
Olive, Capital		$9,000