Adam, Bill, and Charlie are partners. The profit and rule sharing rule between them is 2:5:3, with Bill getting the most and Adam getting the least. The partnership incurs a net loss of $72,000. While closing the Income Summary:
A)Income Summary will be debited for $72,000.
B)Adam, Capital will be debited for $14,400.
C)Adam, Capital will be credited for $36,000.
D)Charlie, Capital will be credited for $36,000.

Question

Quizplus · Accepted Answer

Since the partnership incurred a loss, the Income Summary account needs to be closed by debiting it. The loss of $72,000 needs to be distributed between the partners according to their profit and rule sharing ratio, which is 2:5:3. To find out Adam's share of the loss, we need to divide 2 by the sum of the ratios (2+5+3), which is 0.2. Then we multiply this fraction by the total loss of $72,000, which gives us $14,400. Therefore, Adam, Capital account will be debited for $14,400 to record his share of the loss. Charlie, Capital account will be credited for $36,000 (3/10 of $72,000) and Bill, Capital account will be credited for $45,600 (5/10 of $72,000) to record their respective shares of the loss.

Adam, Bill, and Charlie Are Partners