45 Minutes, Strong PROBLEM C.8
S & X CO.
a.
General Journal
(1)
Nov 9 Cash 15,000
Saunder, Capital 15,000
To record additional investment by owner.
(2)
30 Saunder, Capital 4,000
Saunder, Drawing 4,000
To close the owner’s Drawing account.
30 Income Summary 5,000
Saunder, Capital 5,000
Owner’s Capital account.
b.
(1)
Nov 9 Cash 15,000
Capital Stock 15,000
To record additional investment by owner.
15 Salaries Expense 1,500
To record salary to Saunder.
20 Dividends 1,000
Dividends Payable 1,000
15 Saunder, Drawing 1,500
To record withdrawal from business.
30 Saunder, Drawing 1,500
To record withdrawal from business.
30 Saunder, Drawing 1,000
To record withdrawal from business.
PROBLEM C.8
S & X CO. (concluded)
General Journal
Nov 30 Salaries Expense 1,500
Cash 1,500
To record salary to Saunder.
(2)
30 Income Tax Expense 600
Income Tax Payable 600
To accrue income taxes expense for November.
($2,000 × 30% = $600)
30 Income Summary 600
Income Tax Expense 600
To close the Income Tax Expense account
into the Income Summary account.
30 Income Summary 1,400
Retained Earnings 1,400
To close the Income Summary account.
30 Retained Earnings 1,000
To close the Dividends account.
c.
d.
The net income differs for two reasons. First, the corporation is subject to income taxes, and
If the business is organized as a sole proprietorship, Saunder will pay taxes on the net
30 Dividends Payable 1,000
Cash 1,000
To record the payment of the dividend declared
on November 20.
PROBLEM C.9
AVERY AND KIRK
a.
General Journal
July 1 Cash 30,000
Inventory 56,000
George Avery, Capital 86,000
To record Avery’s investment in the partnership.
1 Cash 9,400
b.
Assets
Cash 39,400$
Accounts receivable 79,600
20 Minutes, Easy
AVERY AND KIRK
Balance Sheet
July 1, 20xx
Accounts Receivable 79,600
Inventory 12,800
Office Equipment 9,000
Accounts Payable 24,800
Dinah Kirk, Capital 86,000
To record Kirk’s investment in the partnership.
PROBLEM C.9
AVERY AND KIRK (concluded)
c.
General Journal
June
30 Income Summary 74,000
George Avery, Capital 37,000
Dinah Kirk, Capital 37,000
25 Minutes, Medium PROBLEM C.10
COMEDY TODAY
a.
Distribution of Net Income Abbott Martin Net Income
(1) Fixed ratio
(2) Interest on capitals, and fixed ratio
(3) Salaries, interest, and fixed ratio
Net income to be divided 110,000$
Salary allowances to partners 36,000$ 56,000$ (92,000)
Total share to each partner 42,000$ 68,000$ 0$
Income after salary allowances 18,000$
Interest allowances on beginning capital:
Total share to each partner 38,500$ 71,500$ 0$
PROBLEM C.10
COMEDY TODAY (concluded)
b.
General Journal
Journal entry to close Income Summary account
(Case 3 from part a above)
30 Minutes, Medium PROBLEM C.11
ROTHCHILD FURNISHING’S, INC.
Partner Partner Partner Net
Axle Brandt Conrad Income
a. Net income to be divided 526,000$
Salary allowances to partners 10,000$ 50,000$ 28,000$ (88,000)
Income after salary allowances 438,000$
Total share to each partner 226,600$ 196,800$ 102,600$ 0$
b. Net income to be divided 95,000$
Salary allowances to partners 10,000$ 50,000$ 28,000$ (88,000)
Income after salary allowances 7,000$
Interest allowances on capital:
Remaining loss after salary and interest allowances (41,000)$
Allocated in a fixed ratio:
Total share to each partner 11,100$ 53,133$ 30,767$ 0$
Division of Net Income
Interest allowances on capital:
Remaining income after salary and interest allowances 390,000$
Allocated in a fixed ratio:
PROBLEM C.11
ROTHCHILD FURNISHING’S, INC. (concluded)
Partner Partner Partner Net
Axle Brandt Conrad Income (loss)
c. Loss to be divided (32,000)$
Salary allowances to partners 10,000$ 50,000$ 28,000$ (88,000)
Losses after salary allowances (120,000)$
Interest allowances on capital:
Division of Net Income
Remaining loss after salary and interest allowances (168,000)$
Allocated in a fixed ratio:
Total share to each partner (52,400)$ 10,800$ 9,600$ 0$
a.
b.
c.
$ 1,000,000
$ 600,000
Less: Corporate income taxes (40%) ……………………………………
Net income of the business (and dividends received by Weber) ……..
PROBLEM C.12
PRIME CUTS
Several reasons why it might be advantageous for Weber to have incorporated his business
include:
40 Minutes, Strong
Income before taxes ……………………………………………………….
Computation of income that Weber would have retained after income taxes if the business
were still organized as a sole proprietorship:
d.
The term double taxation refers to the concept that corporate income is taxed at two
The corporate form could enable Weber to gradually transfer ownership interests in
the business to his children or other heirs.
Limiting personal liability. For example, in the event that some customers are made ill
Computation of income retained by Weber after income taxes with the
company organized as a corporation:
$ 1,000,000
Income before taxes (also net income) …………………………………..
PROBLEM C.12
PRIME CUTS (concluded)
e.
Drawing as much salary as possible. His salary is a deductible expense to the
corporation in its computation of taxable income. While his salary will still be subject to
Weber might organize the business as an S Corporation. This would eliminate the
There are many ways in which Weber could reduce this “tax bite.” In fact, his current
strategies are maximizing the adverse effects of “double taxation.” Weber should consider:
PROBLEM C.13
RAMIREZ AND SMITH
a.
c.
The preceding schedule shows that Partner Ramirez will have a $14,000 advantage over
Partner Smith in both years. In the first year Ramirez will be credited with income of
$2,000 while Smith will be charged with a loss of $12,000. (The difference between a
30 Minutes, Medium
Income-sharing proposal:
Assuming that the present earning capacity of the two partners reflects the relative value
of their services to the new partnership, the difference in the value of their services should
be recognized by agreeing to a salary allowance of $48,000 per year for Ramirez and
(Part b is on next page.)
PROBLEM C.13
RAMIREZ AND SMITH (concluded)
b. RAMIREZ AND SMITH
Division of Partnership Net Income
Net
Income (Loss)
Ramirez Smith Allocated
First year:
Net income (loss) to be divided (10,000)$
Salary allowances to partners 48,000$ 30,000$ (78,000)
Second year:
Net income (loss) to be divided 80,000$
Salary allowances to partners 48,000$ 30,000$ (78,000)
Remaining income (loss) after salary allowances 2,000$
Interest allowances on beginning capital balances:
Remaining income (loss) after salary and interest allowances (22,000)$
Allocated in a fixed ratio:
Total share to each partner 47,000$ 33,000$ 0$
Remaining income (loss) after salary allowances (88,000)$
Interest allowances on beginning capital balances:
Remaining income (loss) after salary and interest allowances (112,000)$
Allocated in a fixed ratio:
Total share to each partner 2,000$ (12,000)$ 0$