Question

The Mohamed & Ahmed Co. reports net sales $ 150,000, cost of goods sold $ 50,000, selling and administrative expenses $ 37,000. Interest allowances are Mohamed $9,000 and Ahmed $6,000; partner salary allowances are Mohamed $30,000 and Ahmed $25,000 and the remainder is shared 6:4 respectively.

Instructions: Indicate the division of net income to each partner and prepare journal entry for net income/net loss division.

Answer 1

Net income = Net sales - Cost of goods sold - Selling and administrative expenses

= 150,000-50,000-37,000

= $63,000

	Mohamed	Ahmed	Total
Salary allowance	30,000	25,000	55,000
Interest allowance	9,000	6,000	15,000
Total	39,000	31,000	60,000
Share of loss	-4,200	-2,800	-7,000
Net income distribution	$34,800	$28,200	$63,000

Mohamed shares of loss = 7,000 x 6/10

= $4,200

Ahmed share of loss = 7,000 x 4/10

= $2,800

General Journal	Debit	Credit
Income summary	$63,000
Capital, Mohamed		$34,800
Capital, Ahmed		$28,200