1. Summers and Winters formed a partnership on January 1. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters' investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for year 1 and year 2 was $75,000 and $120,000, respectively. a. Determine each partner's share of the net income for each year, assuming each of the following independent situations: (1) Income is divided based on the partners' failure to sign an agreement. (2) Income is divided based on a 2:1 ratio (Summers: Winters). (3) Income is divided based on the ratio of the partners' original capital investments. (4) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be divided equally. b. Prepare the journal entry to record the allocation of the Year 1 income under alternative (4) above.

1. Summers and Winters formed a partnership on January 1. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters' investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for year 1 and year 2 was $75,000 and $120,000, respectively. a. Determine each partner's share of the net income for each year, assuming each of the following independent situations: (1) Income is divided based on the partners' failure to sign an agreement. (2) Income is divided based on a 2:1 ratio (Summers: Winters). (3) Income is divided based on the ratio of the partners' original capital investments. (4) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be divided equally. b. Prepare the journal entry to record the allocation of the Year 1 income under alternative (4) above.

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter19: Accounting For Partnerships

Section: Chapter Questions

Problem 3SEA

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