Alika Myers and Cliff Hanson operate Downtown Apartments. Their partnership agreement provides for salaries of $60,000 a year for Myers and $48,000 for Hanson and for an interest allowance of 10 percent on each partner's invested capital at the beginning of the year. The remainder of the net income or loss is to be distributed equally to the two partners. On January 1, 2016, the capital account balances were $104,000 for Myers and $224,000 for Hanson. On July 15, 2016, Hanson made a permanent withdrawal of capital of $80,000 for a down payment on a yacht. The net income for 2016 was $192,800.
Instructions
1. Prepare the general journal entry on July 15, 2016, to record the permanent withdrawal by Hanson.
2. Prepare the general journal entries on December 31, 2016, to:
a. Record the salary allowances for the year.
b. Record the interest allowances for the year.
c. Record the division of the balance of net income.
d. Close the drawing accounts into the capital accounts, assuming that the partners had withdrawn only the full amount of their salary allowances.
3. Prepare a schedule showing the division of net income to the partners as it would appear on the income statement for 2016.
4. Prepare a statement of partners' equities showing the changes that took place in the partners' capital accounts during the year 2016.
Analyze: Do the facts stated in the problem suggest changes that probably should be made in the provision for interest in allocating income? Explain.