Prepare the Division of net income and Prepare the partnership financial statement for the first question. For the second question, prepare the partnership liquidation journal entries for sagastina.

The partnership agreement provides for a 10% interest allowance on beginning capital balances.
King's interest allowance: $\$28,000 \times 0.10 = \$2,800$ Lee's interest allowance: $\$24,000 \times 0.10 = \$2,400$

Salary allowance for King is $8,400 and for Lee is$6,000.
Total allowances for King: $\$8,400 (\text{salary}) + \$2,800 (\text{interest}) = \$11,200$ Total allowances for Lee: $\$6,000 (\text{salary}) + \$2,400 (\text{interest}) = \$8,400$ Total allowances for both partners: $\$11,200 + \$8,400 = \$19,600$ Partnership net income is 22,000. Remaining net income after allowances: $$ \22,000 - $19,600 = $2,400 $$

The remaining net income is distributed equally.
King's share of remaining net income: $\frac{\$2,400}{2} = \$1,200$ Lee's share of remaining net income: $\frac{\$2,400}{2} = \$1,200$ Total share of net income for King: $\$11,200 (\text{allowances}) + \$1,200 (\text{remaining}) = \$12,400$ Total share of net income for Lee: $\$8,400 (\text{allowances}) + \$1,200 (\text{remaining}) = \$9,600$

Division of Net Income:

The statement of partners' capital shows the changes in each partner's capital account over the period.

Kingslee Company
Statement of Partners' Capital
For the Year Ended December 31

: Partnership Liquidation Journal Entries for Sagastina

Initial Balance Sheet Analysis:
The problem states total assets are $65,000 and total liabilities and owner's equity are$65,000.
However, the sum of listed liabilities ($15,000 Notes Payable +$16,000 Accounts Payable = $31,000) and listed capital accounts ($15,000 Saga + $17,000 Courage +$1,200 Tina = $33,200) is$31,000 + $33,200 =$64,200.
There is an $800 discrepancy ($65,000 - $64,200 =$800). To balance the initial balance sheet, this $800 is assumed to be unrecorded capital distributed among partners based on their income ratio (3:2:1).

• Saga: 800 \times \frac{3}{6} = \400$
• Courage: 800 \times \frac{2}{6} = \266.67$
• Tina: 800 \times \frac{1}{6} = \133.33$ Adjusted initial capital balances:
• Saga: $15,000 +$400 = $15,400
• Courage: $17,000 +$266.67 = $17,266.67
• Tina: $1,200 +$133.33 = 1,333.33

Noncash assets include Accounts Receivable ($15,000), Equipment ($35,000), and Inventory ($18,000). Accumulated Depreciation ($8,000) reduces the book value of equipment.
Book value of noncash assets: $\$15,000 + \$35,000 + \$18,000 - \$8,000 = \$60,000$ The assets are sold for 80,000 cash. Gain on realization: $$ \80,000 (\text{sale price}) - $60,000 (\text{book value}) = $20,000 $$ The journal entry records the cash received, removes the book value of assets, and recognizes the gain.

The gain on realization is 20,000. The income ratio is 3:2:1 (total 6 parts). Saga's share of gain: $$ \20,000 \times \frac{3}{6} = $10,000 $Courage's share of gain:$ $20,000 \times \frac{2}{6} = $6,666.67 $Tina's share of gain:$ $20,000 \times \frac{1}{6} = $3,333.33 $$ The journal entry debits Gain on Realization and credits each partner's capital account.

Total liabilities: Notes Payable $15,000 + Accounts Payable$16,000 = $31,000. The journal entry debits the liability accounts and credits Cash.

First, calculate the final capital balance for each partner after distributing the gain and adjusting for the initial discrepancy:

• Saga, Capital: $15,400 (\text{adjusted initial}) +$10,000 (gain) = $25,400$
• Courage, Capital: $17,266.67 (\text{adjusted initial}) +$6,666.67 (gain) = $23,933.34$
• Tina, Capital: $1,333.33 (\text{adjusted initial}) +$3,333.33 (gain) = $4,666.66$Total Capital to be distributed:$25,400 + $23,933.34 +$4,666.66 = $54,000$.

Next, calculate the final cash balance:

• Initial Cash: $5,000
• Add: Cash from sale of assets: $80,000
• Less: Cash paid for liabilities: $31,000
• Final Cash balance: $5,000 +$80,000 - 31,000 = \54,000$. The final cash balance matches the total capital to be distributed.

The journal entry debits each partner's capital account and credits Cash.