Concept explainers
1.
Prepare the lower portion of income statement of the partnership for the year-ended December 30.
1.
Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement. In partnership, the division is often recorded in the lower portion of the income statement.
Prepare lower portion of income statement:
Partnership R and B, CPAs | |||
Income Statement (Partial) | |||
For Year Ended December 31 | |||
Net income | $135,000 | ||
Allocation of net income: | Partner R | Partner B | Total |
Salary allowances | $65,000 | $35,000 | $100,000 |
Interest allowances | $5,500 | $4,500 | $10,000 |
Remaining income | $11,250 | $13,750 | $25,000 |
Allocation of net income | $81,750 | $53,250 | $135,000 |
Table (1)
2.
Prepare a statement of partners’ equity for the year ended December 31 and partners’ equity section of the balance sheet on that date.
2.
Explanation of Solution
Statement of Partners’ equity: This statement reports the equity of each partner and summarizes the division of net income for the year.
Statement of partners ‘equity is prepared as follows:
Partnership R and B, CPAs | |||
Statement of Partners’ Equity | |||
For Year Ended December 31 | |||
Person R | Person B | Total | |
Capital, January 1 | $55,000 | $45,000 | $100,000 |
Net income for the year | $81,750 | $53,250 | $135,000 |
$136,750 | $98,250 | $235,000 | |
Withdrawals (salary & interest) | $70,500 | $39,500 | $110,000 |
Capital, December 31 | $66,250 | $58,750 | $125,000 |
Table (2)
Prepare partners’ equity section of the balance sheet on that date:
Partnership R and B, CPAs | ||
Balance Sheet (Partial) | ||
December 31 | ||
Partners’ Equity | ||
Partner R, Capital | $66,250 | |
Partner B, Capital | $58,750 | |
Total partners’ equity | $125,000 |
Table (3)
3.
Prepare closing entries for the partnership as of December 31.
3.
Explanation of Solution
Closing entries:
Closing entries are those
Prepare closing entries:
Date | Account titles and Explanation | Debit | Credit |
December 31 | Revenues | $215,000 | |
Income Summary | $215,000 | ||
( To close all revenues to income summary) |
Table (4)
- Revenue is a component of partners’ equity and it is decreased. Therefore, debit revenue account by $215,000.
- Income summary is a component of partners’ equity and it is increased. Therefore, credit income summary account by $215,000.
Date | Account titles and Explanation | Debit | Credit |
December 31 | Income Summary | $80,000 | |
Expenses | $80,000 | ||
( To close all expenses to income summary) |
Table (5)
- Income summary is a component of partners’ equity and it is decreased. Therefore, debit income summary account by $80,000.
- Revenue is a component of partners’ equity and it is increased. Therefore, credit revenue account by $80,000.
Date | Account titles and Explanation | Debit | Credit |
December 31 | Income Summary | $135,000 | |
Partner R, Capital | $81,750 | ||
Partner S, Capital | $53,250 | ||
( To close income summary by allocating each partners’ share of net income or net loss to the individual capital account) |
Table (6)
- Income summary is a component of partners’ equity and it is decreased. Therefore, debit income summary account by $135,000.
- Partner R, Capital is a component of partners’ equity and it is increased. Therefore, credit Partner R, Capital account by $81,750.
- Partner S, Capital is a component of partners’ equity and it is increased. Therefore, credit Partner S, Capital account by $53,250.
Date | Account titles and Explanation | Debit | Credit |
December 31 | Partner R, Capital | $70,500 | |
Partner R, Drawing | $70,500 | ||
( To close each partners’ drawing account to the individual capital accounts) |
Table (7)
- Partner R, Capital is a component of partners’ equity and it is decreased. Therefore, debit Partner R, Capital account by $70,500.
- Partner R, Drawing is a component of partners’ equity and it is increased. Therefore, credit Partner R, Drawing account by $70,500.
Date | Account titles and Explanation | Debit | Credit |
December 31 | Partner B, Capital | $39,500 | |
Partner B, Drawing | $39,500 | ||
( To close each partners’ drawing account to the individual capital accounts) |
Table (8)
- Partner B, Capital is a component of partners’ equity and it is decreased. Therefore, debit Partner B, Capital account by $39,500.
- Partner B, Drawing is a component of partners’ equity and it is increased. Therefore, credit Partner B, Drawing account by $39,500.
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Chapter 19 Solutions
College Accounting, Chapters 1-27
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