Question

1. During 2017, the partnership of Kiki and Tammy earned net income of $ 125,000. Kiki’s beginning capital was $ 60,000 and she withdrew $15,000 during the year. Tammy’s beginning capital $ 70,000 and she had drawings of $22,000 for the year.

Instructions:

(a) Assume the partnership income- sharing agreement calls for income to be divided with a salary of $ 30,000 to Kiki and $ 25,000 to Tammy, interest of 10% on beginning capital, and the remainder divided 60% to Kiki and 40% to Tammy. Prepare the journal entry to record the allocation of net income.

(b) Prepare the Partnership Equity Statement for 2017 under the assumption in part a.

Answer 1

A)

Journal	Debit	Credit
Salaries	$55000
To kisi		$30000
To tammy		$25000
(For salary paid)
Interest on capital	$13000
To kiki(60000×10%)		$6000
To tammy(70000×10%)		$7000
(For interest on capital paid)
Net income/profit(125000-55000-13000)	$57000
To. Kisi(57000×6/10)		$34200
To tammy(57000×4/10)		$22800
(For remaining profit distributed)

B)

Statment of capital

	Kisi	Tammy
Begining capital	$60000	$70000
Salary	$30000	$25000
Interest on capital	$6000	$7000
Profit	$34200	$22800
Less: drawing	($15000)	($22000)
Ending capital	$115200	$102800

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