Question

Assume that Eric Duffy and Johnnie Gladwin operate a partnership. Their partnership agreement states that E. Duffy receives two–thirds of the partnership income or loss and J. Gladwin receives the remaining one–third. The partnership's income statement reported net income of $90,000 for the year ending December 31. Prepare the December 31 journal entry that would be required to close the Income Summary account and allocate the net income to the two partners.

Answer 1

Answer:

Dr Income Summary account 90,000

     Cr Capital account, E. Duffy 60,000

    Cr Capital account, J. Gladwin 30,000

Explanation:

The income summary account has a credit balance, and in order to close it we must debit it against capital accounts.

Since Duffy was entitled to 2/3 of the profits, then he should receive $60,000, and the remaining $30,000 would go to Gladwin.