Holden, Phillips, and Rogers Are Partners with Beginning-Year Capital Balances

question 131

Essay

Holden, Phillips, and Rogers are partners with beginning-year capital balances of $120,000, $60,000, and $60,000, respectively. Partnership net income for the year is $84,000. Make the necessary journal entry to close Income Summary to the capital accounts if:
a. Partners agree to divide income based on their beginning-year capital balances.
b. Partners agree to divide income based on the ratio of 5:3:2 (Holden:Phillips:Rogers), respectively.
c. Partnership agreement is silent as to division of income and less.

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Definitions:

Accounting Equation

The foundational principle of double-entry bookkeeping, stating that assets equal liabilities plus shareholders' equity.

Components

Elements or parts that combine to form a larger product or system.

Net Profit Margin Ratio

A profitability metric that shows the percentage of revenue that remains as net income after all expenses have been deducted.

Net Income

The total earnings of a company after accounting for all expenses and taxes, reflecting the company's profitability.