Determine the allocation of the 2016 net income to the partners under each of the following sets of independent assumptions: 1. Partnership net income is $60,000, and profit is divided on the basis of average capital balances during the year. 2. Partnership net income is $50,000, Kat gets a bonus of 10 percent of income for managing the business, and the remaining profits are divided on the basis of beginning capital balances. 3. Partnership net loss is $35,000, Mol receives a $12,000 salary, each partner is allowed 10 percent interest on beginning capital balances, and the remaining profits are divided equally.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
A summary of changes in the capital accounts of the Kat, Lyn, and Mol partnership for 2016, before closing partnership net income to the capital accounts, is as follows:
Kat Capital Lyn Capital Mol Capital Total Capital
Balance 1/1/2016 $80,000 $80,000 $90,000 $250,000
Investment April 1 $20,000 $20,000
Withdrawal May 1 ($15,000) ($15,000)
Withdrawal July 1 ($10,000) ($10,000)
Withdrawal September 1 ($30,000) (30,000)
$90,000 $65,000 $60,000 $215,000
Required: Determine the allocation of the 2016 net income to the partners under each of the following sets of independent assumptions:
1. Partnership net income is $60,000, and profit is divided on the basis of average capital balances during the year.
2. Partnership net income is $50,000, Kat gets a bonus of 10 percent of income for managing the business, and the remaining profits are divided on the basis of beginning capital balances.
3. Partnership net loss is $35,000, Mol receives a $12,000 salary, each partner is allowed 10 percent interest on beginning capital balances, and the remaining profits are divided equally.
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