Response to the following problem:
On January 1, 2016, Bog, Cog, and Fog had capital balances of $60,000, $100,000, and $20,000 respectively in their partnership. In 2016 the partnership reported net income of $40,000. None of the partners withdrew any assets in 2016. The partnership agreed to share profits and losses as follows:
a. A monthly salary allowance of $2,000, $2,500, and $4,000 to Bog, Cog and Fog respectively.
b. An annual interest allowance of 10 per cent to each partner based on her capital balance at the beginning of the year.
c. Any remaining balance to be shared in a 5:3:2 ratio (Bog:Cog:Fog).
Required:
1. Prepare a schedule to allocate the 2016 net income to partners.
2. Assume all the income statement accounts for 2016 have been closed to the income summary account. Prepare the entry to record the division of the 2016 net income.