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What is smalls portion of the net income

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Reference no: EM131175845

Question: Two people are starting a small IT firm. They come to you for advice on how to form a partnership. They have listed 2 scenarios and are asking you how to make journal entries for each one of the following transactions: 

Two partners, A and B, start a partnership.

Partner A's investment is the following:

Cash: $20,000

Inventory: $30,000

Accounts payable: $50,000

Computer equipment: $40,000

Accumulated depreciation: $20,000

Partner B's investment is the following:

Cash: $10,000

Computer software: $20,000

Two partners, Small and Big, form a partnership in which Small invested $40,000 and Big invested $60,000 for a total capital of $100,000. But Small devotes more time to the business and earns more from the firm. They have agreed to share the profits as follows:

The first $20,000 is allocated on the partner's capital balances.

The next $30,000 is allocated based on service: Small gets $20,000, and Big gets $10,000.

Any remaining profits are allocated equally.

The partnership's net income is $100,000.

What is Small's portion of the net income? What is Big's portion of the net income? Make the entry for this allocation. 

600-800 words + journal entries

Verified Expert

This assignment states about the partnership, how the partnership firm is formed and what are the situation that need to be handled. in addition, as per the given scenario calculation of profits to be shared equally, calculation of investments and the journal entries have been made.

Reference no: EM131175845

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