Question

The net income earned by the cooper, cross, and crane partnership is $18,000. their respective average capital balances are $20,000, $20,000, and $40,000. what is the closing entry to allocate the net income if no agreement was made for division of income?

Answer 1

The answer to your question is:

Debit Income Summary $18,000; credit Cooper's Capital $6,000; credit Cross's Capital $6,000; credit Crane's Capital $6,000.

Answer 2

In the absence of an agreement on how income should be divided among the owners, the sharing of income will be based on their average capital balances (as what is given in the problem). Therefore, we need to determine the proportionate shares of the owners based on their contribution.

Here is the table showing the allocation of income:

Cooper $20,000/$80,000 X $18,000 = $4,500

Cross $20,000/$80,000 X $18,000 = $4,500

Crane $40,000/$80,000 X $18,000 = $9,000

Total $80,000 $18,000