Response to the following problem:
Staci Cook, Lin Xi, and Kevin Schwartz formed the CXS Partnership by making capital contributions of $72,000, $108,000, and $60,000, respectively.
They predict annual partnership net income of $120,000 and are considering the following alternative plans of sharing income and loss:
(a) equally;
(b) in the ratio of their initial capital investments; or
(c) salary allowances of $20,000 to Cook, $15,000 to Xi, and $40,000 to Schwartz; interest allowances of 12% on their initial capital investments; and the balance shared equally.
Required
1. Prepare a table with the following column headings
Income (Loss)
Sharing Plan Calculations Cook Xi Schwartz Total
Use the table to show how to distribute net income of $120,000 for the calendar year under each of the alternative plans being considered. (Round answers to the nearest whole dollar.)
2. Prepare a statement of partners' equity showing the allocation of income to the partners assuming they agree to use plan (c), that income earned is $43,800, and that Cook, Xi, and Schwartz withdraw $9,000, $19,000, and $12,000, respectively, at year-end.
3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $43,800. Also close the withdrawals accounts.