Farrell and Jimmy enter into a partnership agreement on May 1,2017.Farrell contributes $50,000 and Jimmy contributes $140,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net income for the year ended December 31,2017 is $60,000.Which of the following is the correct journal entry to record the allocation of profit?

Question

Quizplus · Accepted Answer

B)Allocation based on capital balances uses the ratio of the partner's capital balance to the total capital.In this case,Total Capital = 200,000 ($140,000 + $50,000)
Jimmy's Capital balance = $140,000
Income allocated to Jimmy = ($140,000 / 200,000)× $60,000 = 15,789
Farrell's Capital balance = $50,000
Income allocated to Farrell = ($50,000 / 200,000)× $60,000 = 44,211

Farrell and Jimmy Enter into a Partnership Agreement on May