Dave, Brian, and Paul are partners in a retail appliance store. The partnership was formed January 1, 2019, with each partner investing $45,000. They agreed that profits and losses are to be shared as follows: 1. Divided in the ratio of 40:30:30 if net income is not sufficient to cover salaries, bonus, and interest. 2. A net loss is to be allocated equally. 3. Net income is to be allocated as follows if net income is in excess of salaries, bonus, and interest. a. Monthly salary allowances are: Dave $3.500 Brian 2,500 Paul 1,500 b. Brian is to receive a bonus of 8% of net income before subtracting salaries and interest, but after subtracting the bonus. c. Interest of 10% is allocated based on the beginning-of-year capital balances. d. Any remainder is to be allocated equally. Operating performance and other capital transactions were as follows. Dave Capital Transactions Brian Paul Year-End Net Income (Loss) Investment Withdrawals Investment Withdrawals Investment Withdrawals $3,200 12/31/19 $(5,400) $15,000 $15,000 $7,000 $6,000 12/31/20 27,000 101 $17,000 17,000 19,000 7,000 6,000 3,200 -0- -01 12/31/21 120,000 101 9,000 6,000 3,200
Dave, Brian, and Paul are partners in a retail appliance store. The partnership was formed January 1, 2019, with each partner investing $45,000. They agreed that profits and losses are to be shared as follows: 1. Divided in the ratio of 40:30:30 if net income is not sufficient to cover salaries, bonus, and interest. 2. A net loss is to be allocated equally. 3. Net income is to be allocated as follows if net income is in excess of salaries, bonus, and interest. a. Monthly salary allowances are: Dave $3.500 Brian 2,500 Paul 1,500 b. Brian is to receive a bonus of 8% of net income before subtracting salaries and interest, but after subtracting the bonus. c. Interest of 10% is allocated based on the beginning-of-year capital balances. d. Any remainder is to be allocated equally. Operating performance and other capital transactions were as follows. Dave Capital Transactions Brian Paul Year-End Net Income (Loss) Investment Withdrawals Investment Withdrawals Investment Withdrawals $3,200 12/31/19 $(5,400) $15,000 $15,000 $7,000 $6,000 12/31/20 27,000 101 $17,000 17,000 19,000 7,000 6,000 3,200 -0- -01 12/31/21 120,000 101 9,000 6,000 3,200
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:PROBLEM 15-2
Income Allocation and Capital Statements LO 6
Dave, Brian, and Paul are partners in a retail appliance store. The partnership was formed January 1, 2019, with each partner investing $45,000. They agreed that profits and losses are to
be shared as follows:
1. Divided in the ratio of 40:30:30 if net income is not sufficient to cover salaries, bonus, and interest.
2. A net loss is to be allocated equally.
3. Net income is to be allocated as follows if net income is in excess of salaries, bonus, and interest.
a. Monthly salary allowances are:
b. Brian is to receive a bonus of 8% of net income before subtracting salaries and interest, but after subtracting the bonus.
c. Interest of 10% is allocated based on the beginning-of-year capital balances.
d. Any remainder is to be allocated equally.
Operating performance and other capital transactions were as follows.
Dave $3,500
Brian 2,500
Paul 1,500
Dave
-0-
Capital Transactions
$17,000
17,000
19,000
Brian
Year-End Net Income (Loss) Investment Withdrawals Investment Withdrawals Investment Withdrawals
12/31/19
$7,000 $6,000
$(5,400) $15,000
12/31/20
-0-
$15,000
-0-
-0-
7,000
6,000
27,000
120,000
ww
12/31/21
9,000
6,000
Paul
Required:
A. Prepare a schedule of changes in partners' capital accounts for each of the three years.
B. Prepare the journal entry to close the income summary account to the partners' capital accounts at the end of each year.
$3,200
3,200
3,200
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