Reference no: EM131811471

Part (a) Grace and James have a partnership and share income on a basis of 6:4. When Karl is admitted to the partnership, Grace and James have capital balances of $100,000 and $70,000, respectively. Karl invests $90,000 cash for a 30% ownership interest with bonuses to the existing partners. Required: Prepare the journal entry to record the admission of Karl.

Part (b) After Karl joined the partnership, a new profit and loss distribution agreement was made. Each partner is allowed interest of 10% on ending capital balances. Grace is given an $8,000 salary allowance and the remainder of the profit or loss is shared equally. At the end of the first year of operation after Karl joined the partnership, the accounting records showed partners' drawing and capital accounts as follows:

Grace's Drawings $27,200 and Capital $107,200, James's Drawings $34,800 and Capital $74,800, and Karl's Drawings $18,000 and Capital $78,000. In addition, the partnership earned net income of $29,000.

Required:

(a) Prepare a schedule showing the division of net income between the partners.

(b) Prepare journal entries to record the division of net income by using method 1.