Reference no: EM133161776

Question - On 1 January 20X0, Aaron, Bill and Catherine formed a partnership called ABC. The initial cash investment of Aaron, Bill and Catherine was $690,000, $230,000 and $345,000 respectively. Initially, they decided to allocate income by the capital balances method, and ABC's net income was $227,700 in 20X0.

At the beginning of 20X1, the partners agreed that they should update the allocation method to better reflect their service contributions to the partnership. In the updated agreement, the allocation is as follows:

a) Monthly salary allowance of $8,000 to Aaron, $12,500 to Bill, and $3,000 to Catherine;

b) Annual interest allowances of 9% of a partner's beginning-year capital balance;

c)  Equal share of any remaining balance of income or loss.

In 20X1, the net income of ABC was $390,570.

Required -

1) Prepare journal entries to record the initial investment in the partnership. Explanations are not required.

2) Prepare journal entries to record the allocation of net income to the partners at the end of the year 20X0 by closing the Income Summary account. Explanations are not required.

3) Calculate the income of each partner in the year 20X1.