A comedy club called Comedy Today was organized as a partnership withAbbott investing $80,000 and Martin investing $120,000. During the first year, net income amounted to $110,000.
Instructions:
a. Determine how the $ 110,000 net income would be divided under each of the following three independent assumptions as to the agreement for sharing profits and losses. Use schedules of the type illustrated in this chapter to show all steps in the division of net income between the partners.
1. Net income is to be divided in a fixed ratio: 35 percent to Abbott and 65 percent toMartin.
2. Interest at 15 percent to be allowed on beginning capital investments and balance to bedivided equally.
3. Salaries of $36,000 to Abbott and $56,000 to Martin; interest at 15 percent to be allowed on beginning capital investments; balance to be divided equally.
b. Prepare the journal entry to close the Income Summary account, using the division of netincome developed in part a(3).