Question

Assume that Eric Duffy and Johnnie Gladwin operate a partnership. The partnership agreement states that the income and loss will be shared based on the ratio of their beginning capital balances. At the beginning of the year, Duffy had a capital balance of $80,000 and Gladwin had a capital balance of $20,000. The partnership's income statement reported net income of $90,000 for the year ending December 31. Prepare the December 31 journal entry that would be required to close the Income Summary account and allocate the net income to the two partners.

Answer 1

Answer:

Debit Income summary $90,000

Credit Duffy, capital $72,000

Credit Gladwin, capital $18,000

Explanation:

To close income summary account to partner’s capital, said account must be debited then credit partner’s account in the amount based on the agreed allocation ratio.

Computation of allocation: (based on beginning capital balances)

Duffy $80,000

Gladwin $20,000

——————————

Total $100,000

Duffy (80,000/100,000) x 90,000 = $72,000

Gladwin (20,000 x 100,000) x 90,000 = $18,000

JOURNAL ENTRY:

Debit income summary $90,000

Credit Duffy, capital $72,000

Credit Gladwin, capital $18,000