What is the closing entry to allocate net income $210,000 to Eric, Von, and Derek? Their respective capital balances are $69,000, $69,000, and $92,000. Net income is shared in a ratio of their capital balances.
A) Debit Income Summary $210,000; credit Eric, Capital $63,000; credit Von, Capital $63,000; credit Derek, Capital $84,000
B) Debit Income Summary $210,000; credit Eric, Capital $70,000; credit Von, Capital $70,000; credit Derek, Capital $70,000
C) Debit Salary Expense $210,000; credit Salaries Payable $210,000
D) Net income cannot be allocated.

Question

Quizplus · Accepted Answer

The net income of $210,000 is allocated based on the ratio of their capital balances. The total capital is $69,000 + $69,000 + $92,000 = $230,000. Eric and Von each have $69,000/$230,000 of the capital, and Derek has $92,000/$230,000. Therefore, the income allocation is $210,000 * ($69,000/$230,000) for Eric and Von, and $210,000 * ($92,000/$230,000) for Derek, which results in $63,000 for Eric, $63,000 for Von, and $84,000 for Derek.

What Is the Closing Entry to Allocate Net Income $210,000