Sally Cook, Lin Xi, and Ken Schwartz formed the CXS Partnership by making capital contributions of $ 144,000, $ 216,000, and $ 120,000, respectively. They predict annual partnership net income of $ 240,000 and are considering the following alternative plans of sharing income and loss:
(a) Equally;
(b) In the ratio of their initial capital investments; or
(c) Salary allowances of $ 40,000 to Cook, $ 30,000 to Xi, and $ 80,000 to Schwartz; interest allowances of 12% on their initial capital investments; and the balance shared equally.
Required:
1. Prepare a table with the following column headings.
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Sally Cook, Lin Xi, and Ken Schwartz formed the CXSUse the table to show how to distribute net income of $ 240,000 for the calendar year under each of the alternative plans being considered. (Round answers to the nearest whole dollar.)
2. Prepare a statement of partners equity showing the allocation of income to the partners assuming they agree to use plan (c), that income earned is $ 87,600, and that Cook, Xi, and Schwartz withdraw $ 18,000, $ 38,000, and $ 24,000, respectively, at year end.
3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $ 87,600. Also close the withdrawalsaccounts.