Answer:
(a-1) Remaining income (loss) = $6,000
(a-2) Remaining income (loss) = –$8,000
(b) See (b-1) and (b-2) below for the journal entries.
Explanation:
(a-1) Prepare a schedule showing the distribution of net income assuming net income is $50,000.
Note: See part a-1 of the attached excel file for the schedule showing the distribution of net income.
In the attached excel file, the following is used:
Remaining income (loss) = Net income - Total annual salaries and interest on capital = $50,000 - $44,000 = $6,000
(a-2) Prepare a schedule showing the distribution of net income assuming net income is $36,000.
Note: See part a-2 of the attached excel file for the schedule showing the distribution of net income.
In the attached excel file, the following is used:
Remaining income (loss) = Net income - Total annual salaries and interest on capital = $36,000 - $44,000 = –$8,000
(b-1) Journalize the allocation of net income assuming net income is $50,000
The journal entries will look as follows:
Account Titles and Explanation Debit ($) Credit ($)
Income Summary 50,000
McGill Capital 30,600
Smyth Capital 19,400
(To record allocation of net income.)
(b-2) Journalize the allocation of net income assuming net income is $36,000
The journal entries will look as follows:
Account Titles and Explanation Debit ($) Credit ($)
Income Summary 36,000
McGill Capital 22,200
Smyth Capital 13,800
(To record allocation of net income.)
