Question

Farmer and Taylor formed a partnership with capital contributions of $285,000 and $335,000, respectively. Their partnership agreement calls for Farmer to receive a $87,000 per year salary. The remaining income or loss is to be divided equally. Assuming net income for the current year is $237,000, the journal entry to allocate net income is:

Answer 1

Dr Income Summary $237,000

Cr Farmer, Capital $162,000

Cr Taylor,Capital $75,000

Step-by-step explanation:

Preparation of the journal entry to allocate net income

Based on the information given in a situation where their partnership agreement calls for Farmer to receive the amount of $87,000 per year salary in which the remaining income or loss is to be divided equally among them which means that Assuming the net income for the current year is the amount of $237,000, the journal entry to allocate the net income is:

Dr Income Summary $237,000

Cr Farmer, Capital $162,000

($237,000-$75,000)

Cr Taylor,Capital $75,000

[($237,000-$87,000)/2]