Zheng Invested $100,000 and Murray Invested $200,000 in a Partnership

question 127

Multiple Choice

Zheng invested $100,000 and Murray invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Zheng and a $40,000 per year salary allowance to Murray, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally. Assuming net income for the current year is $105,000, the journal entry to allocate net income is:

• A) Debit Income Summary, $105,000; Credit Zheng, Capital, $52,500, Credit Murray, Capital, $52,500.
• B) Debit Income Summary, $105,000; Credit Zheng, Capital, $35,000, Credit Murray, Capital, $70,000.
• C) Debit Income Summary, $105,000; Credit Zheng, Capital, $57,500, Credit Murray, Capital, $47,500.
• D) Debit Income Summary, $105,000; Credit Zheng, Capital, $42,500, Credit Murray, Capital, $62,500.
• E) Debit Zheng, Capital, $57,500, Debit Murray, Capital, $47,500; Credit Income Summary, $105,000;

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Definitions:

Cash Expenditure

The actual outflow of cash or cash equivalents by a company, typically for operating expenses, investments, or acquisitions.

Taxes

Compulsory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period, typically showing a downward slope from left to right.

Relationship

The way in which two or more people, groups, or countries interact and behave towards each other.