Zheng invested $100,000 and Murray invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Zheng and a $40,000 per year salary allowance to Murray, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally.
- Assuming net income for the current year is $105,000, the journal entry to allocate net income is:

Question

Quizplus · Accepted Answer

To allocate net income, we first need to calculate the total salary allowances and interest allowances for each partner.
Zheng's salary and interest allowances:
Salary allowance = $60,000
Interest allowance = 10% of $100,000 = $10,000
Total allowances = $70,000
Murray's salary and interest allowances:
Salary allowance = $40,000
Interest allowance = 10% of $200,000 = $20,000
Total allowances = $60,000
The remaining income of $35,000 ($105,000 - $70,000 - $60,000) is shared equally between the partners, which is $17,500 each.

Journal entry:
Debit Income Summary $105,000
Credit Zheng, Capital $57,500 (salary and interest allowances + 1/2 of the balance)
Credit Murray, Capital $47,500 (salary and interest allowances + 1/2 of the balance)

Zheng Invested $100,000 and Murray Invested $200,000 in a Partnership