Question

Nathan, George, and Bill have formed a partnership and the partnership agreement states that Nathan will receive 40% of the profits and George and Bill will share the remainder equally. During the current year, the partnership earns $120,000. What is the closing entry to record the allocation of partnership income

Answer 1

Nathan will receive 40% of the partnership income, while George and Bill share the remainder equally. The closing entry to record the allocation of partnership income is a debit to Nathan's capital account for $48,000, and credits to George and Bill's capital accounts for $36,000 each.

Step-by-step explanation:

In this scenario, Nathan will receive 40% of the profits and George and Bill will share the remainder equally. The partnership earned $120,000 during the current year.

To allocate the partnership income, we first calculate 40% of $120,000, which is $48,000. This is the portion that Nathan receives. The remaining $72,000 ($120,000 - $48,000) is shared equally between George and Bill, so each of them receives $36,000.

The closing entry to record the allocation of partnership income is as follows:

Debit Nathan's capital account with $48,000

Credit George's capital account with $36,000

Credit Bill's capital account with $36,000

Answer 2

Profits will be distributed in the following way:

Nathan will receive $120,000 x 40% = $48,000

George will receive $120,000 x 30% = $36,000

Bill receive $120,000 x 30% = $36,000

Total = $120,000

Journal entry

Dr Income summary 120,000

Cr Capital, Nathan 48,000

Cr Capital, George 36,000

Cr Capital, Bill 36,000