Problem 11-1B Methods for allocating partnership profit (22 marks)

Phung, Moier, and lister invested $130,000, $150,000, and $120,000, respectively into an organic farm to restaurant distribution business.During its first year, the firm earned $25,000.

Required

Prepare entries to close the firm's income summary account as of December 31 and to allocate the profit to the partners under each of the following assumptions.

a.The partners did not specify any special method of sharing profit.

b.The partners agreed to share profit and losses in the ratio of their beginning investments.

c.The partners agreed to share profit by providing annual salary allowances of $75,000 to Phung, $40,000 to Moier, and $40,000 to Lister; allowing 20% interest on the partner's beginning investments; and sharing the remainder equally.