Business, 20.07.2021 01:10 seaans20391

McGill and Smyth have capital balances on January 1 of $42,000 and $38,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $16,000 for McGill and $10,000 for Smyth, (2) interest at 11% on beginning capital balances, and (3) remaining income or loss to be shared 70% by McGill and 30% by Smyth. (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 situation above .

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Answer from: HavenShort3075

McGill and Smyth Partnership

a - 1) Allocation of Net Income of $50,000

McGill Smyth Total

Capital balances, Jan. 1 $42,000 $38,000 $80,000

Income-sharing: $50,000

Annual salaries $18,000 $10,000 ($28,000)

Interest on capital balances 4,620 4,180 (8,800)

Remaining income/loss 9,240 3,960 (13,200)

Total appropriations $31,860 $18,140 $50,000

Capital balances, Dec. 31 $73,860 $56,140 $130,000

a -2) Allocation of net income of $36,000:

McGill Smyth Total

Capital balances, Jan. 1 $42,000 $38,000 $80,000

Income-sharing: $36,000

Annual salaries $18,000 $10,000 ($28,000)

Interest on capital balances 4,620 4,180 (8,800)

Remaining income/loss (560) (240) 800

Total appropriations $22,060 $13,940 $36,000

Capital balances, Dec. 31 $64,060 $51,940 $116,000

b -1) Allocation of net income of $50,000:

Debit Annual salaries $28,000

Credit Capital, McGill $18,000

Credit Capital, Smyth $10,000

To record the allocation of annual salaries to the partners.

Debit Interest on Capital $8,800

Credit Capital, McGill $4,620

Credit Capital, Smyth $4,180

To record the allocation of interest on capital.

Debit Income and Loss $13,200

Credit Capital, McGill $9,240

Credit Capital, Smyth $3,960

To record the allocation of remaining income.

b - 2) Allocation of net income of $36,000:

Debit Annual salaries $28,000

Credit Capital, McGill $18,000

Credit Capital, Smyth $10,000

To record the allocation of annual salaries to the partners.

Debit Interest on Capital $8,800

Credit Capital, McGill $4,620

Credit Capital, Smyth $4,180

To record the allocation of interest on capital.

Debit Capital, McGill $560

Debit Capital, Smyth $240

Credit Income and Loss $800

To record the allocation of remaining income.

Explanation:

a) Data and Calculations:

McGill Smyth Total

Capital balances, Jan. 1 $42,000 $38,000 $80,000

Income-sharing: $50,000

Annual salaries $18,000 $10,000 ($28,000)

Interest on capital balances 4,620 4,180 (8,800)

Remaining income/loss sharing 70% 30%

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McGill and Smyth have capital balances on January 1 of $42,000 and $38,000, respectively. The partne...

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