Question

Two partners, Small and Big, form a partnership in which Small invested $40,000 and Big invested $60,000 for a total capital of $100,000. But Small devotes more time to the business and earns more from the firm. They have agreed to share the profits as follows:

1. The first $20,000 is allocated on the partner's capital balances.
2. The next $30,000 is allocated based on service: Small gets $20,000, and Big gets $10,000.
3. Any remaining profits are allocated equally.
4. The partnership's net income is $100,000.

Requried:
a. What is Small's portion of the net income?
b. What is Big's portion of the net income? Make the entry for this allocation.
c. What would be the right parts to the journal entry for this question?

Answer 1

a. What is Small's portion of the net income?

• $53,000

b. What is Big's portion of the net income? Make the entry for this allocation.

• Big's portion = $47,000

• Dr Income Summary 47,000
• Cr Big, capital 47,000

c. What would be the right parts to the journal entry for this question?

• Debit Income summary and credit capital accounts

Step-by-step explanation:

partnership's net income $100,000

first $20,000

• Small $8,000
• Big $12,000

next $30,000

• Small $20,000
• Big $10,000

Remaining $50,000

• Small $25,000
• Big $25,000

total Small = $53,000

total Big = $47,000