Stuart had a $100,000 capital balance for eight months and a $130,000 balance for four months.Cathy had a $76,000 capital balance for five months and a $100,000 balance for seven months.If the net income of the year is $160,000,and income is distributed based on average capital balances,the entry to show the distribution of income to each partner is:

Question

Quizplus · Accepted Answer

To calculate the average capital balance for each partner, we need to multiply the balance by the number of months it was held, add those values and then divide by the total number of months. 
Stuart's average capital balance = [(100,000 x 8) + (130,000 x 4)] / 12 = 108,333.33
Cathy's average capital balance = [(76,000 x 5) + (100,000 x 7)] / 12 = 90,333.33
To distribute the net income of $160,000, we need to calculate each partner's share based on their average capital balance as a percentage of the total average capital balance: 
Stuart's share = (108,333.33 / 198,666.67) x 160,000 = $87,437.50
Cathy's share = (90,333.33 / 198,666.67) x 160,000 = $72,562.50
Entry to distribute income: 
Stuart Capital Account 87,437.50
Cathy Capital Account 72,562.50
Retained Earnings 0 (since all income has been distributed)

Stuart Had a $100,000 Capital Balance for Eight Months and a $130,000