If a net loss of $25,000 is divided equally between Candy Kane and Brandy Brown,the closing entry would involve a:

Question

Quizplus · Accepted Answer

When a net loss is divided between partners, it is allocated based on their profit-sharing ratio. Since the net loss is divided equally between Candy Kane and Brandy Brown, their profit-sharing ratio is 1:1.

To record the allocation of the net loss, we must debit the capital account of Brandy Brown and credit the capital account of Candy Kane for $12,500 each. Therefore, the correct option is C) debit to Brown's capital account for $12,500.

The entry would be:

Dr. Brown's capital account $12,500 
Cr. Kane's capital account $12,500

Option A is incorrect because Income Summary is only used to close revenue and expenses accounts at the end of the accounting period. Option B is incorrect because it only credits one partner's capital account instead of both partners. Option D is incorrect because it assumes that the loss is paid in cash, which may not be the case.

If a Net Loss of $25,000 Is Divided Equally Between