Sample Problem Problem 19.3A

Samantha Gaddis and Patty Lane own The Blossom Flower Shop. The partnership agreement provides that Gaddis can withdraw $3,000 a month and Lane $3,800 a month in anticipation of profits. The withdrawals, which are not considered to be salaries, were made each month. Net income and net losses are to be allocated 60 percent to Gaddis and 40 percent to Lane. For the year ended December 31, 2007, the partnership earned a net income of $70,000.

Prepare general journal entries to: Close the Income Summary account Close the partners’ drawing accounts 2007 Dec 31Income Summary70,000 Samantha Gaddis, Capital42,000 Patty Lane, Capital28,000 To record allocation of net income *(70,000 x 60% = 42,000; 70,000 x 40% = 28,000) Dec 31Samantha Gaddis, Capital36,000 Samantha Gaddis, drawing36,000 to close drawing account *(3,000 x 12 months = 36,000) Dec 31Patty Lane, capital45,600 Patty Lane, drawing45,600 to close drawing account *(3,800 x 12 months = 45,600)

Assume that there was a net loss of $20,000 for the year instead of a profit of $70,000. Give the journal entries to: Close the income summary account Close the partners drawing accounts 2007 Dec 31Samantha Gaddis, capital12,000 Patty Lane, capital 8,000 Income summary20,000 (20,000x60% = 12,000; 20,000x40% = 8,000) 31Samantha Gaddis, capital36,000 Samantha Gaddis, drawing36,000 31Patty Lane, capital45,600 Patty Lane, drawing45,600