Bob and Bill allocate 2/3 of the profits and losses to Bob and 1/3 to Bill. The net income of the firm is $30,000. The journal entry to close the Income Summary will include:
A)credit to Income Summary for $20,000.
B)debit to Bob, Capital for $10,000.
C)credit to Bob, Capital for $20,000.
D)credit to Income Summary for $30,000.

Question

Quizplus · Accepted Answer

Since Bob gets 2/3 of the profits and losses, his share of the net income is $20,000 (2/3 x $30,000). Therefore, his capital account should be credited for that amount. There is no reason to debit his capital account or credit the Income Summary for a different amount. Choice A is incorrect because that amount would only be correct if the entire net income was allocated to Bob. Choice D is incorrect because the Income Summary should be closed with a credit equal to the net income, but that doesn't mean the credit should be for the full $30,000 in this case.

Bob and Bill Allocate 2/3 of the Profits and Losses