Business partners Baliva, Masi, and Romalati have a partnership agreement that outlines a detailed formula for sharing profits and losses. Baliva, Masi, and Romalati earn annual salaries of $60 000, $70 000, and $80 000 respectively. They also earn a fixed percentage of interest on their capital balances which are $50 000, $50 000, and $70 000 respectively. Any remaining income is allocated using an income ratio of 30%, 30% and 40% respectively. Calculate the net income allocation and record the journal entry under the following unrelated situations: (a) net income of $400 000, and 7% on capital balances (b) net income of $50 000, and 5% on capital balances.

General Journal

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CALCULATIONS

Date

Particulars

Debit

Credit

Scenario (a)

Baliva

Masi

Romalati

Total

a)

Balance in Capital account, January 1

60,000

70,000

80,000

Income Ratio

Net Income

Income Distribution

Salary

Interest Allowance

b)

Net Income allocated PRIOR to ratio application

Net Income to be allocated based on income ratio

Share of income based on income ratio

Total allocation of net income

Scenario (b)

Baliva

Masi

Romalati

Total

Balance in Capital account, January 1

Income Ratio

Net Income

Income Distribution

Salary

Interest Allowance

Net Income allocated PRIOR to ratio application

Net Income to be allocated based on income ratio

Share of income based on income ratio

Total allocation of net income