Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally.
-Assuming net income for the current year is $135,000, the journal entry to allocate net income is:

Question

Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. 
-Assuming net income for the current year is $135,000, the journal entry to allocate net income is:

Quizplus · Accepted Answer

First, Farmer's salary of $70,000 must be allocated to him.
$135,000 net income - $70,000 Farmer's salary = $65,000 remaining income to be divided equally between Farmer and Taylor.
$65,000 divided by 2 partners = $32,500 for each partner.
Thus, the journal entry to allocate net income would be:
Debit Income Summary $135,000
Credit Farmer, Capital $102,500 ($70,000 salary + $32,500 share of remaining income)
Credit Taylor, Capital $32,500 (share of remaining income)

Farmer and Taylor Formed a Partnership with Capital Contributions of $200,000