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Prepare the journal entry to close the net loss

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Question - The Articles of Partnership for partners Moon, Sun, and Stars stipulate 10% interest allowance for each partner based on average capital balances during 2020. The beginning capital balances for Moon, Sun, and Stars on January 1, 2020 are $100,000, $250,000, and $400,000, respectively. On April 1, 2020, Moon invests additional 20,000 in the partnership. On July 1, 2020 Star withdraws 50,000 from the partnership. During 2020, Sun and Stars have drawings of 60,000 and 20,000, respectively.

During 2020, partners Sun and Stars receive salary allocation of 60,000 and 20,000, respectively.

If the partnership's Net Income for the period after salary allocations are considered is above 130,000, Stars is also going to receive a bonus allowance of 10% of Net Income. The measure of Net Income used to determine the actual amount of the bonus is Net Income after bonus and interest allocations are considered, but before salary allocations are considered. The profit-and-loss sharing ratios for the partnership are: Moon (20%), Sun (50%), and Stars (30%)

Required (show all your calculations) -

1. Assume that the partnership's net income for 2020 is $250,000. What is the TOTAL partnership RESIDUAL INCOME allocation in 2020? What is the total partnership profit allocation for Moon, Sun, and Stars, respectively?

2. Assume that the partnership's net income for 2020 is $250,000. Prepare the journal entry to close the NI into the Capital balances of the partners.

3. Assume that the partnership incurs a net loss of $100,000 in 2020. What is the TOTAL partnership RESIDUAL INCOME allocation in 2020? What is the total partnership profit allocation for Moon, Sun, and Stars, respectively?

4. Assume that the partnership incurs a net loss of $100,000 in 2020. Prepare the journal entry to close the net loss into the Capital balances of the partners.

Reference no: EM132709161

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