Sharp and Townson had capital balances of $60,000 and $120,000, respectively on January 1 of the current year. On May 8, Sharp invested an additional $10,000 in the partnership. During the year, Sharp and Townson withdrew $25,000 and $45,000, respectively. After closing all expense and revenue accounts at the end of the year, Income Summary has a credit balance of $90,000, that Sharp and Townson have agreed to split on a 2:1 basis, respectively.

a. Journalize the entries to close the income summary account and the drawing accounts. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".

b. Prepare the statement of owner's equity for the current year. If an amount box does not require an entry, leave it blank.

 The answers are given below;                                                                            

Explanation:

a.

Income Summary Account          Dr.$90,000

Retained Earnings                       Cr.$90,000

Capital-Townson                  Dr.$45,000

Capital-Sharp                        Dr.$25,000

Drawings                               Cr.$70,000

b. Statement of Owner's Equity

Capital-Townson (120,000-45,000)        $75,000

Retained Earnings-Townson (90,000*1/3)  $30,000

Capital-Sharp  (60,000-25,000)                 $35,000

Retained Earnings-Sharp (90,000*2/3)      $60,000

Total Owners' Equity                                   $200,000    

Closing of income summary  

Drincome summary account$90,000  

CrSharp capital account                    $60,000  

Cr  Townson Capital account               $30,000  

Being share of product in ratio 2:1

Dr  Sharp capital account$25,000    

Dr  Townson capital account$45,000    

Cr  Sharp drawings account  $25,000  

Cr  Townson drawings account  $45,000  

Being cash withdrew during the year posted to capital account    Both partners balances as shown in the statement of equity is $105,000 each  

Explanation:

After the entries to close the income summary and the drawing accounts as above,I prepared the statement of changes in equity starting with opening capital balances, added the capital introduced by Sharp as well as the share of profit in the year before deducting the amounts of drawings by each partner as shown in the attached

contributions made after 1986. after-tax contributions to employer plans made after 1986 are recovered pro rata with taxable amounts. the remaining $80,000 is from pre-tax contributions, employer matching dollars, and earnings on those amounts.