Farrell and Jimmy enter into a partnership agreement on May 1,2018.Farrell contributes $60,000 and Jimmy contributes $120,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net income for the year ended December 31,2018 is $70,000.Which of the following is the correct journal entry to record the allocation of profit? (Do not round any intermediate calculations.Round your final answers to the nearest dollar. )

Question

Quizplus · Accepted Answer

Allocation based on capital balances uses the ratio of the partner's capital balance to the total capital.In this case,Total Capital = $180,000 ($120,000 + $60,000)
Jimmy's Capital balance = $120,000
Income allocated to Jimmy = ($120,000 / $180,000)× $70,000 = $46,667
Farrell's Capital balance = $60,000
Income allocated to Farrell = ($60,000 / $180,000)× $70,000 = $23,333

Farrell and Jimmy Enter into a Partnership Agreement on May