Liam and Katano formed a partnership by investing $95,000 and $105,000 respectively. They agreed to share income based on an allocation to Liam of an annual salary allowance of $150,000, interest allowance to both Liam and Katano equal to 15% of their beginning-of-year capital balance, and any balance based on a 1:3 ratio respectively. At the end of their first year, December 31, 2014, the Income Summary had a credit balance of $30,000. Liam withdrew $7,000 during the year and Katano $24,000.
1. Prepare the entry to close the Income Summary on December 31, 2014.
2. Calculate the balance in each partner’s capital account at the end of their first year.