Kimble, Sykes, and Gerard open an accounting practice on January 1, 2022, in Chicago, Illinois, to be operated as a partnership. Kimble and Sykes will serve as the senior partners because of their years of experience. To establish the business, Kimble, Sykes, and Gerard contribute cash and other properties valued at $248,000, $200,000, and $112,000, respectively. An articles of partnership agreement is drawn up stipulating the following: Personal drawings are allowed annually up to an amount equal to 10 percent of the partner's beginning capital balance for the year. Profits and losses are allocated according to the following plan: Each partner receives an annual salary allowance of $55 per billable hours worked. Interest is credited to the partners’ capital accounts at the rate of 12 percent of the beginning capital balance for the year. Kimble and Sykes are eligible for an annual bonus of 10 percent of net income after subtracting the bonus, salary allowance, and interest. The agreement also states that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed. Any remaining partnership profit or loss is to be divided evenly among all partners. On January 1, 2023, the partners admit Nichols to the partnership. Nichols contributes cash directly to the business in an amount equal to a 25 percent interest in the book value of the partnership property subsequent to this contribution. The partnership profit and loss sharing agreement is not altered upon Nichols's entrance into the firm; the general provisions continue to be applicable. The billable hours for the partners during the first three years of operation follow: 2022 2023 2024 Kimble 2,660 1,800 1,880 Sykes 2,400 1,500 1,620 Gerard 2,260 1,380 1,310 Nichols 0 1,560 1,550 The partnership reports net income (loss) for 2022 through 2024 as follows: 2022 $ 306,000 2023 (14,800) 2024 501,000 Each partner withdraws the maximum allowable amount each year. Required: Prepare schedules that allocate each year's net income to the partners. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2024.

Kimble, Sykes, and Gerard open an accounting practice on January 1, 2022, in Chicago, Illinois, to be operated as a partnership. Kimble and Sykes will serve as the senior partners because of their years of experience. To establish the business, Kimble, Sykes, and Gerard contribute cash and other properties valued at $248,000, $200,000, and $112,000, respectively. An articles of partnership agreement is drawn up stipulating the following: Personal drawings are allowed annually up to an amount equal to 10 percent of the partner's beginning capital balance for the year. Profits and losses are allocated according to the following plan: Each partner receives an annual salary allowance of $55 per billable hours worked. Interest is credited to the partners’ capital accounts at the rate of 12 percent of the beginning capital balance for the year. Kimble and Sykes are eligible for an annual bonus of 10 percent of net income after subtracting the bonus, salary allowance, and interest. The agreement also states that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed. Any remaining partnership profit or loss is to be divided evenly among all partners. On January 1, 2023, the partners admit Nichols to the partnership. Nichols contributes cash directly to the business in an amount equal to a 25 percent interest in the book value of the partnership property subsequent to this contribution. The partnership profit and loss sharing agreement is not altered upon Nichols's entrance into the firm; the general provisions continue to be applicable. The billable hours for the partners during the first three years of operation follow: 2022 2023 2024 Kimble 2,660 1,800 1,880 Sykes 2,400 1,500 1,620 Gerard 2,260 1,380 1,310 Nichols 0 1,560 1,550 The partnership reports net income (loss) for 2022 through 2024 as follows: 2022 $ 306,000 2023 (14,800) 2024 501,000 Each partner withdraws the maximum allowable amount each year. Required: Prepare schedules that allocate each year's net income to the partners. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2024.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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	2022	2023	2024
Kimble	2,660	1,800	1,880
Sykes	2,400	1,500	1,620
Gerard	2,260	1,380	1,310
Nichols	0	1,560	1,550

2022	$ 306,000
2023	(14,800)
2024	501,000

Required:

Prepare schedules that allocate each year's net income to the partners.
Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2024.

Net Income Allocation-2024
Kimble
Sykes
Gerard
Nichols
Totals
Net income
$
522,000
Salary allowance
$
103,400 $
89,100 $
72,050 $
85,250
(349,800)
Interest
39,035
29,312
16,591
28,313
(113,251)
Bonus
3,163
3,163
0
0
(6,326)
Remaining net income
$
52,623
7,906
7,906
7,906
7,905
(31,623)
Total allocation
$
153,504
$
129,481 $
96,547 $
121,468 $
21,000

Assessment Tool iFrame
KIMBLE, SYKES, GERARD, and NICHOLS
Statement of Partners' Capital
For the Year Ending December 31, 2024
Kimble
Sykes
Gerard
Nichols
Totals
Beginning balances
$
404,147
$
294,000 $
698,147
Profit allocation
160,963
160,963
Drawings
(32,529)
(32,529)
Ending Balances
$
532,581
$
0
$
0 $
294,000 $ 826,581

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement 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, and drawings of a partner.

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