Farmer and Taylor Formed a Partnership with Capital Contributions of $200,000

Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. Assuming net loss for the current year is $15,000, the journal entry to allocate the net loss is:

A) Debit Income Summary, $15,000; Debit Farmer, Capital, $27,500; Credit Taylor, Capital, $42,500.
B) Debit Income Summary, $15,000; Credit Farmer, Capital, $7,500; Credit Taylor, Capital, $7,500.
C) Debit Taylor, Capital, $42,500; Credit Income Summary, $15,000; Credit Farmer, Capital, $27,500.
D) Debit Income Summary, $15,000; Debit Taylor, Capital, $27,500; Credit Taylor, Capital, $32,500.
E) Debit Income Summary, $15,000; Credit Taylor, Capital, $7,500; Credit Farmer, Capital, $7,500.

Correct Answer:

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