Walters and Kim Are Partners

question 39

Essay

Walters and Kim are partners. The partnership agreement provides for salary allowances of
$26,000 for Walters and $22,000 for Kim and for interest of 10 percent on each partner's invested capital at the beginning of the year. The balance of any remaining profits or losses is to be divided 40 percent to Walters and 60 percent to Kim. On January 1, 2019, the capital account balances were Walters, $75,000, and Kim, $95,000. Net income for the year was $72,000.
1. On page 10 of a general journal, record the following entries on December 31, 2019. Omit descriptions.
A)Record the salary allowances for the year.
B)Record the interest allowances for the year.
C)Record the division of the balance of net income.
D)Close the drawing accounts into the capital accounts. Assume that the partners have withdrawn the full amount of their salaries.
2. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2019.

• A)Record the salary allowances for the year.
• B)Record the interest allowances for the year.
• C)Record the division of the balance of net income.
• D)Close the drawing accounts into the capital accounts. Assume that the partners have withdrawn the full amount of their salaries.
• 2. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2019.

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Definitions:

Economic Profit

The divergence between an organization's total turnover and its entire liabilities, including both evident and underlying costs.

Minimum Average Variable Cost

The lowest point at which a company can produce its product with the least average variable costs involved.

Marginal Revenue

The incremental income a business obtains by selling one more unit of a product or service.

Average Total Cost

The total cost of producing a certain quantity of output divided by that quantity, representing the per-unit cost of production.