Summers and Winters Formed a Partnership on January 1

Essay

Summers and Winters formed a partnership on January 1. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters' investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for year 1 and year 2 was $75,000 and $120,000, respectively.
1. Determine each partner's share of the net income for each year, assuming each of the following independent situations:
(a) Income is divided based on the partners' failure to sign an agreement.
(b) Income is divided based on a 2:1 ratio (Summers: Winters).
(c) Income is divided based on the ratio of the partners' original capital investments.
(d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be divided equally.
2. Prepare the journal entry to record the allocation of the Year 1 income under alternative (d) above.
Part 1: Calculation of partners' capital contributions: