At the end of its first year of operations on December 31, 2008, the RAF Company’s accounts show the following.

The capital balance represents each partner’s initial capital investment. Therefore, net income or net loss for 2008 has not been closed to the partners’ capital accounts.

Instructions

(a) Journalize the entry to record the division of net income for 2008 under each of the following independent assumptions.

(1) Net income is \($40,000.\) Income is shared 5:3:2.

(2) Net income is \($30,000.\) Reno and Augustine are given salary allowances of \($11,000\) and \($10,000,\) respectively. The remainder is shared equally.

(3) Net income is \($27,000.\) Each partner is allowed interest of 10% on beginning capital balances.
Reno is given an \($18,000\) salary allowance. The remainder is shared equally.

(b) Prepare a schedule showing the division of net income under assumption (3) above.

(c) Prepare a partners’ capital statement for the year under assumption (3) above.

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Partner Drawings Capital J. Reno $12,000 $33,000 L. Augustine 9,000 20,000 J. Fritz 4,000 10,000