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    2 - Dividing Income Among Partners - Examples

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    John
    The document provides 3 examples of how partnership income can be divided: 1) Using a fixed ratio, such as 60% to one partner and 40% to another. 2) Dividing income based on beginning capital balances, such as one partner receiving 3 times as much income as the other based on a 3:1 capital ratio. 3) Dividing income by paying salaries, interest on capital balances, and splitting any remainder evenly, including examples of journal entries when income exceeds or is less than these allowances.

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    2 - Dividing Income Among Partners - Examples

    Uploaded by

    John
    39 views4 pages
    The document provides 3 examples of how partnership income can be divided: 1) Using a fixed ratio, such as 60% to one partner and 40% to another. 2) Dividing income based on beginning capital balances, such as one partner receiving 3 times as much income as the other based on a 3:1 capital ratio. 3) Dividing income by paying salaries, interest on capital balances, and splitting any remainder evenly, including examples of journal entries when income exceeds or is less than these allowances.

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    2_Dividing Income Among Partners_Examples

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    The document provides 3 examples of how partnership income can be divided: 1) Using a fixed ratio, such as 60% to one partner and 40% to another. 2) Dividing income based on beginning capital balances, such as one partner receiving 3 times as much income as the other based on a 3:1 capital ratio. 3) Dividing income by paying salaries, interest on capital balances, and splitting any remainder evenly, including examples of journal entries when income exceeds or is less than these allowances.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    39 views4 pages

    2 - Dividing Income Among Partners - Examples

    Uploaded by

    John
    The document provides 3 examples of how partnership income can be divided: 1) Using a fixed ratio, such as 60% to one partner and 40% to another. 2) Dividing income based on beginning capital balances, such as one partner receiving 3 times as much income as the other based on a 3:1 capital ratio. 3) Dividing income by paying salaries, interest on capital balances, and splitting any remainder evenly, including examples of journal entries when income exceeds or is less than these allowances.

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    of 4

    Dividing Income Among Partners - Examples Name: _________________

    BAT4M Date:
    __________________

    Example 1 - Fixed Ratio


    Assume the partnership agreement of Olivia Tsang and David Breck is based on a ratio of 3:2. This
    means Tsang receives 60% and Breck receives 40%. If their partnership’s net income for the year ended
    December 31, 20—is $70,000, show the entry to close the Income Summary Account:

    Example 2 - Ratio based on beginning capital balances


    Tsang invested $30,000 and Breck invested $10,000. If the partnership’s net income is still $70,000,
    show the entry to close the Income Summary Account.

    Example 3 - Salaries, interest and remainder in a fixed ratio


    Tsang’s services are worth an annual salary of $36,000 and Breck’s experience is valued at $24,000. In
    order to make up for the difference in their capital contributions, the partners agree to interest allowances
    equal to 10% of each partner’s beginning of the year capital balance. Any remaining balance of income
    or loss is to be shared equally.

    ILLUSTRATION WHEN INCOME EXCEEDS ALLOWANCES:


    Tsang’s original capital investment is $30,000 and Breck’s is $10,000. The net income for the first year is
    $70,000.
    Dividing Income Among Partners - Examples Name: _________________
    BAT4M Date:
    __________________

    Journal entry to close income summary account:

    ILLUSTRATION WHEN ALLOWANCES EXCEED INCOME:


    Tsang’s original capital investment is $30,000 and Breck’s is $10,000. The net income for the first year is
    $50,000.
    Dividing Income Among Partners - Examples Name: _________________
    BAT4M Date:
    __________________

    Journal entry to close income summary account:

    ILLUSTRATION WHEN THERE IS A NET LOSS:


    Tsang’s original capital investment is $30,000 and Breck’s is $10,000. The net loss for the first year is
    $30,000.
    Dividing Income Among Partners - Examples Name: _________________
    BAT4M Date:
    __________________

    Journal entry to close the income summary account:

    Review page 507 to see the how the Statement of Partners’ Equity
    and the Balance Sheet would be set up.

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