Reference no: EM132723181

Problem - Molly Young, Gary Hurst, and Rob Carey are partners in Gulf Horizons Law. They share profits and losses in a 50-30-20 ratio. The partnership agreement calls for annual salaries of $120,000, $105,000, and $90,000, respectively, and interest of 12% on their January 1 capital balances. Any remaining net income (or net loss) is to be divided in accordance with the ratios used for sharing profits and losses. The partners' capital balances as of January 1, 20-1, were Young, $360,000, Hurst, $225,000, and Carey, $150,000. No additional investments were made during the year. The net income of the partnership for the year 20-1 was $480,000. Partners' withdrawals for the year were Young, $150,000, Hurst, $120,000, and Carey, $105,000. On March 4, 20-2, the partners decide to liquidate their law firm. On that date, the firm has a cash balance of $138,000, noncash assets of $822,000 and liabilities of $120,000. No additional investments or withdrawals were made in 20-2. Between March 5 and March 31, the noncash assets are sold for $870,000, the gain is divided according to the profit and loss sharing ratio, and the liabilities are paid. The remaining cash is then distributed to the partners.

Required - Prepare the general journal entry to close Income Summary to the partners' capital accounts as of December 31, 20-1.