E12-4 Prepare schedule showing distribution of net income and closing entry
McGill and Smyth have capital balances on January 1 of $50,000 and $40,000, respectively.
The partnership income-sharing agreement provides for (1) annual salaries of $22,000 for
McGill and $13,000 for Smyth, (2) interest at 10% on beginning capital balances, and
(3) remaining income or loss to be shared 60% by McGill and 40% by Smyth.
Instructions
(a) Prepare a schedule showing the distribution of net income, assuming net income is
(1) $50,000 and (2) $36,000.
(b) Journalize the allocation of net income in each of the situations above.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)(1) McGill Smyth Total
Salary allowance Value Value Value
Interest allowance
McGill ?
Smyth ?
Total interest ?
Total salaries and interest ? ? ?
Remaining income
McGill ?
Smyth ?
Total remainder ?
Total division of net income ? ? ?
(a)(2) McGill Smyth Total
Salary allowance Value Value Value
Interest allowance ? ? ?
Total salaries and interest ? ? ?
Remaining deficiency
McGill ?
Smyth ?
Total remainder ?
Total division of net income ? ? ?
(b)(1) Value Value
Value
(b)(2) Value Value
Value
After you have completed the requirements of E12-4, consider the additional question.
Answers are on the other tab in this file.
Account
Account
DIVISION OF NET INCOME
DIVISION OF NET INCOME
Account
Account
Account
Account
1 Suppose the partnership suffered a loss of $25,000. How much of the loss will each partner
have to absorb?
Income Summary
E12-4 Solution
(a)(1) McGill Smyth Total
Salary allowance $22,000 $13,000 $35,000
Interest allowance
McGill ($50,000 x10%) 5,000
Smyth ($40,000 x 10%) 4,000
(a)(2) McGill Smyth Total
Salary allowance $22,000 $13,000 $35,000
Interest allowance 5,000 4,000 9,000
(b)(1) 50,000 30,600
DIVISION OF NET INCOME
DIVISION OF NET INCOME
Income Summary
E12-4 Solution to additional question
1 Suppose the partnership suffered a loss of $25,000. How much of the loss will each partner
have to absorb?
McGill Smyth Total
Salary allowance $22,000 $13,000 $35,000
Interest allowance 5,000 4,000 9,000
Total salaries and interest $27,000 $17,000 $44,000
DIVISION OF NET INCOME