Keith Williams and Brian Adams were students when they formed a partnership several years ago for a part-time business called Music Works. Adjusted trial balance information for the year ended December 31, 2014, appears below.

Account...................Balance*

Accounts payable .................................................... $9,500

Accumulated depreciation....................................... 75,000

Brian Adams, capital** ............................................. 22,000

Brian Adams, withdrawals ....................................... 60,000

Cash....................................................................... 208,000

Equipment.............................................................. 300,000

Expenses................................................................. 102,000

Keith Williams, capital**......................................... $28,300

Keith Williams, withdrawals .................................... 50,000

Note payable, due May 2016***............................. 120,000

Office supplies........................................................ 16,000

Revenues ................................................................ 480,000

Utilities payable ...................................................... 1,200

Required

1. Prepare calculations that show how the income should be allocated to the partners assuming the partnership agreement states that incomes/losses are to be shared by allowing a $90,000 per year salary allowance to Williams, a $150,000 per year salary allowance to Adams, and the remainder on a 3:2 ratio.

2. Prepare the journal entry to close the Income Summary account to the partners’ capital accounts.

3. Prepare a statement of changes in equity and a classified balance sheet.

Analysis Component: Why might the partners’ capital accounts be so small relative to the amount of the withdrawals made?