Exercise 12-4 McGill and Smyth have capital balances on January 1 of $50,000 and $40,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $22,000 for McGill and $13,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 60% by McGill and 40% by Smyth. (1) Prepare a schedule showing the distribution of net income, assuming net income is $50,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. 15,000, (15,000).) DIVISION OF NET INCOME McGill Smyth Total Salary allowance Interest allowance Total salaries and interest Remaining income/ deficiency Total division of net income (2) Prepare a schedule showing the distribution of net income, assuming net income is $36,000. (If an amount reduces the account balance then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).) DIVISION OF NET INCOME McGill Smyth Total Salary allowance Interest allowance Total salaries and interest Remaining income / deficiencyY Total division of net income Journalize the allocation of net income in each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order presented in the previous part.) No. Account Titles and Explanation Debit Credit 1. 2.

IN CASE OF ANY DOUBTS OR CORRECTIONS FEEL FREE TO COMMENT BELOW THANK YOU! Net Income 50000 36000 Less: Salaries To McGill To Smyth 22000 13000 22000 13000 Less: Interest @10% of opening Capital Balance To McGill = 10% * 50000 To Smyth= 10% * 40000 5000 4000 5000 4000 Remaining Net Income ( to be shared in the Ratio of 60%: 40% between McGill and Smyth) 6000 -8000 Share of McGill= 60% * Remaining Income 3600 -4800 Share of Smyth= 40% * Remaining Income 2400 -3200 When Net Income is $50000 Particulars McGill Smyth Capital on Jan 1 50000 40000 Add: Salaries 22000 13000 Add: Interest 5000 4000 Add: Share of Income 3600 2400 Closing Capital 80600 59400 When Net Income is $36000 Particulars McGill Smyth Capital on Jan 1 50000 40000 Add: Salaries 22000 13000 Add: Interest 5000 4000 Add: Share of Income -4800 -3200 Closing Capital 72200 53800 Accounting Entries for Allocation of Net Income: (1) Debit The Profit & Loss Account with $6000 Credit McGill.

Exercise 12-4 McGill and Smyth have capital balances …

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IN CASE OF ANY DOUBTS OR CORRECTIONS FEEL FREE TO COMMENT BELOW

THANK YOU!

Net Income	50000	36000
Less: Salaries To McGill To Smyth	22000 13000	22000 13000
Less: Interest @10% of opening Capital Balance To McGill = 10% * 50000 To Smyth= 10% * 40000	5000 4000	5000 4000
Remaining Net Income ( to be shared in the Ratio of 60%: 40% between McGill and Smyth)	6000	-8000
Share of McGill= 60% * Remaining Income	3600	-4800
Share of Smyth= 40% * Remaining Income	2400	-3200

When Net Income is $50000

Particulars	McGill	Smyth
Capital on Jan 1	50000	40000
Add: Salaries	22000	13000
Add: Interest	5000	4000
Add: Share of Income	3600	2400
Closing Capital	80600	59400

When Net Income is $36000

Particulars	McGill	Smyth
Capital on Jan 1	50000	40000
Add: Salaries	22000	13000
Add: Interest	5000	4000
Add: Share of Income	-4800	-3200
Closing Capital	72200	53800

Accounting Entries for Allocation of Net Income:
(1) Debit The Profit & Loss Account with $6000
Credit McGill

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Exercise 12-4 McGill and Smyth have capital balances on January 1 of $50,000 and $40,000, respectively....

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