E 16-13 Partnership income allocation—Salary allowance, bonus, and additional contributions during the year Kat and Edd formed the K & E partnership several years ago. Capital account balances on January 1, 2016, were as follows: Kat $496,750 Edd $268,250 The partnership agreement provides Kat with an annual salary of $10,000 plus a bonus of 5 percent of partnership net income for managing the business. Edd is provided an annual salary of $15,000 with no bonus. The remainder is shared evenly. Partnership net income for 2016 was $30,000. Edd and Kat each invested an additional $5,000 during the year to finance a special purchase. Year-end drawing account balances were $15,000 for Kat and $10,000 for Edd. Required Prepare an income allocation schedule. Create the journal entries to update the equity accounts at the end of the year. Determine the capital balances as of December 31, 2016.
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.
E 16-13 Partnership income allocation—Salary allowance, bonus, and additional contributions during the year
Kat and Edd formed the K & E partnership several years ago. Capital account balances on January 1, 2016, were as follows:
|
Kat |
$496,750 |
|
Edd |
$268,250 |
The partnership agreement provides Kat with an annual salary of $10,000 plus a bonus of 5 percent of partnership net income for managing the business. Edd is provided an annual salary of $15,000 with no bonus. The remainder is shared evenly. Partnership net income for 2016 was $30,000. Edd and Kat each invested an additional $5,000 during the year to finance a special purchase. Year-end drawing account balances were $15,000 for Kat and $10,000 for Edd.
Required
-
Prepare an income allocation schedule.
-
Create the
journal entries to update the equity accounts at the end of the year. -
Determine the capital balances as of December 31, 2016.
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