Farmer and Taylor formed a partnership with capital contributions of $250,000 and $300,000, respectively. Their partnership agreement calls for Farmer to receive a $80,000 per year salary. The remaining income or loss is to be divided equally. Assuming net income for the current year is $195,000, the journal entry to allocate net income is:
A. Debit Income Summary, $195,000; Credit Farmer, Capital, $170,000; Credit Taylor, Capital, $25,000.
B. Debit Income Summary, $195,000; Credit Taylor, Capital, $137,500; Credit Farmer, Capital, $57,500.
C. Debit Income Summary, $195,000; Credit Farmer, Capital, $106,140; Credit Taylor, Capital, $28,860.
D. Debit Income Summary, $195,000; Credit Farmer, Capital, $97,500; Credit Taylor, Capital, $97,500.
E. Debit Income Summary, $195,000; Credit Farmer, Capital, $137,500; Credit Taylor, Capital, $57,500.
Answer: E
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