At the end of its first year of operations on December 31, 2012, the LAX Companys accounts show the following.

Partner Drawings Capital

J. Leno $12,000 $33,000

L. Arthur 9,000 20,000

J. Xavier 4,000 10,000

The capital balance represents each partners initial capital investment.Therefore, net income or net loss for 2012 has not been closed to the partners capital accounts.

Instructions

(a) Journalize the entry to record the division of net income for 2012 under each of the following independent assumptions. (1) Net income is $40,000. Income is shared 5:3:2. (2) Net income is $30,000. Leno and Arthur are given salary allowances of $11,000 and $10,000, respectively. The remainder is shared equally. (3) Net income is $33,000. Each partner is allowed interest of 10% on beginning capital balances. Leno is given an $18,000 salary allowance. The remainder is shared equally.

(b) Prepare a schedule showing the division of net income under assumption (3) above.

(c) Prepare a partners capital statement for the year under assumption (3) above.