Question

7. NBS Company's P12-2A At the end of its first year of operations on December 31, 2017, NBS Co accounts show the following. re a nent. SOLAR Partner Drawings Capital Art Niensted $23,000 $48,000 Greg Bolen 14,000 30,000 Krista Sayler 10,000 25,000 The capital balance represents each partner's initial capital investment. Therefore, net income or net loss for 2017 has not been closed to the partners' capital accounts. Instructions (a) Journalize the entry to record the division of net income for the year 2017 under each of the following independent assumptions. (1) Net income is $30,000. Income is shared 6:3:1. (2) Net income is $40,000. Niensted and Bolen are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally. (3) Net income is $19,000. Each partner is allowed interest of 10% on beginning capital balances. Niensted is given a $15,000 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. OOO

Answer 1

Information Given -

On December 31, 2017, NBS Company's accounts show the following -

Partner	Drawings	Capital
Art Niensted	$23000	$48000
Greg Bolen	$14000	$30000
Krista Sayler	$10000	$25000

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Answer - Part - (a) - Journal Entries for independent Assumptions -

Assumption - (1) - Net income is $30000. Income is shared 6:3:1

Particulars	Debit ( $ )	Credit ( $ )
Income Summary Art Niensted [ $30000 * (6 / 10) ] Greg Bolen [ $30000 * (3 / 10) ] Krista Sayler [ $30000 * (1 / 10) ]	30000 - - -	- 18000 9000 3000
Total	30000	30000

Assumption - (2) - Net income is $40000. Niensted and Bolen are given salary allowances of $15000 and $10000, respectively The remainder is shared equally.

Particulars	Debit ( $ )	Credit ( $ )
Income Summary Art Niensted [ $15000 + $5000 ** ] Greg Bolen [ $10000 + $5000 ** ] Krista Sayler [ $5000 ** ] ** [ Balance amount shared equally = ($40000 - $15000 - $10000) / 3 ] = $5000	40000 - - -	- 20000 15000 5000
Total	40000	40000

Assumption - (3) - Net income is $19000. Each partner is allowed interest of 10% on beginning capital balances. Niensted is given a $15000 salary allowance. The remainder is shared equally

Particulars	Debit ( $ )	Credit ( $ )
Income Summary Art Niensted [ $15000 + ($48000*10%) - $2100 ** ] Greg Bolen [ ($30000*10%) - $2100 ** ] Krista Sayler [ $25000*10%) - $2100** ] ** [ Balance amount shared equally = ($19000 - $15000 - $4800 - $3000 - $2500) / 3 ] = -$2100	19000 - - -	- 17700 900 400
Total	19000	19000

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Answer - Part - (b) -

Schedule showing the division of Net income under Assumption - (3)

Particulars	Amount in ( $ )
	Art Niensted	Greg Bolen	Krista Sayler	Total
Salary	15000	-	-	15000
Interest ( 10% on beginning capital balances )	4800 [ 48000 * 10% ]	3000 [ 30000 * 10% ]	2500 [ 25000 * 10% ]	10300
Balance amount shared equally = [($19000 - $15000 - $4800 - $3000 - $2500) / 3 ]	-2100	-2100	-2100	-6300
Total	17700	900	400	19000

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Answer - Part - (c) -

Partners' Capital statement for the year under Assumption - (3)

Particulars	Amount in ( $ )
	Art Niensted	Greg Bolen	Krista Sayler
Partners' Capital at the Beginning	48000	30000	25000
Drawings	(23000)	(14000)	(10000)
Share in Net income [Refer part - (b) working for calculations]	17700	900	400
Partners' Capital at the End [Capital at the Beginning - Drawings + Share in Net income]	42700	16900	15400