Farmer and Taylor formed a partnership with capital contributions of $205,000 and $255,000, respectively. Their partnership agreement calls for Farmer to receive a $71,000 per year salary. The remaining income or loss is to be divided equally. Assuming net income for the current year is $141,000, the journal entry to allocate net income is:

Answer and Explanation:

The Journal entry is shown below:-

Income summary Dr, $141,000

To Farmer's capital Dr, 106,000    ($71,000 + $35,000)

           To Taylor's capital $35,000 ($141,000 - $71,000) ÷ 2

(Being allocation of net income is recorded)

Here we debited the income summary and we credited the Farmer's capital and Taylor's capital as there is a distribution of the income is done so the both the accounts are affected.