
Concept explainers
Concept Introduction:
Allocation of profits: A partnership contract usually provides for the allocation of
To prepare: Tables for each of the three years showing allocation of partnership income under each of the four plans

Answer to Problem 1BPSB
Solution: Tables for each of the three years showing allocation of partnership income under each of the four plans are as follows:
Year-1 | |||
Allocated Net Income/ (loss) | Bell | Green | Total |
Plan a | $ (14,400) | $ (21,600) | $ (36,000) |
Plan b | $ (9,000) | $ (27,000) | $ (36,000) |
Plan c | $ (33,600) | $ (2,400) | $ (36,000) |
Plan d | $ (44,600) | $ 8,600 | $ (36,000) |
Year-2 | |||
Allocated Net Income/ (loss) | Bell | Green | Total |
Plan a | $ 30,400 | $ 45,600 | $ 76,000 |
Plan b | $ 19,000 | $ 57,000 | $ 76,000 |
Plan c | $ 11,200 | $ 64,800 | $ 76,000 |
Plan d | $ 11,400 | $ 64,600 | $ 76,000 |
Year-3 | |||
Allocated Net Income/ (loss) | Bell | Green | Total |
Plan a | $ 75,200 | $ 112,800 | $ 188,000 |
Plan b | $ 47,000 | $ 141,000 | $ 188,000 |
Plan c | $ 56,000 | $ 132,000 | $ 188,000 |
Plan d | $ 67,400 | $ 120,600 | $ 188,000 |
Explanation of Solution
Explanation: Tables for each of the three years showing allocation of partnership income under each of the four plans are prepared as follows:
Year-1 | |||
Plan a: | Bell | Green | Total |
Beginning Capital investment (A) | $ 104,000 | $ 156,000 | $ 260,000 |
Ratio (B) = (A/Total) | 0.40 | 0.60 | |
Net Income/ (loss) for the year (C) | $ (36,000) | ||
Allocated Net Income/ (loss) = C*B = | $ (14,400) | $ (21,600) | $ (36,000) |
Plan b: | Bell | Green | Total |
Time Devoted to the business (A) | 0.33 | 1.00 | 1.33 |
Ratio (B) = (A/Total) | 0.25 | 0.75 | |
Net Income/ (loss) for the year (C) | $ (36,000) | ||
Allocated Net Income/ (loss) = C*B = | $ (9,000) | $ (27,000) | $ (36,000) |
Plan c: | Bell | Green | Total |
Salary Allowance (A) | $ - | $ 48,000 | $ 48,000 |
Net Income/ (loss) for the year (B) | $ (36,000) | ||
Balance Net Income/ (loss) (C) = B-A | $ (84,000) | ||
Beginning Capital investment (D) | $ 104,000 | $ 156,000 | $ 260,000 |
Ratio (E) = (D/Total) | 0.40 | 0.60 | |
Balance Allocated Net Income/ (loss) (F) = C*E = | $ (33,600) | $ (50,400) | $ (84,000) |
Allocated Net Income/ (loss) =A+F = | $ (33,600) | $ (2,400) | $ (36,000) |
Plan d: | Bell | Green | Total |
Beginning Capital investment (A) | $ 104,000 | $ 156,000 | $ 260,000 |
Interest on beginning Capital Investment (B) = A*10% | $ 10,400 | $ 15,600 | $ 26,000 |
Salary Allowance (C) | $ - | $ 48,000 | $ 48,000 |
Total Interest and Salary (D) = B+C = | $ 10,400 | $ 63,600 | $ 74,000 |
Total Net Income (E) | $ (36,000) | ||
Balance Net Income (F) = (E-F) (Divided Equally) | $ (55,000) | $ (55,000) | $(110,000) |
Allocated Net Income = (D+F) | $ (44,600) | $ 8,600 | $ (36,000) |
Year-2 | |||
Plan a: | Bell | Green | Total |
Beginning Capital investment (A) | $ 104,000 | $ 156,000 | $ 260,000 |
Ratio (B) = (A/Total) | 0.40 | 0.60 | |
Net Income/ (loss) for the year (C) | $ 76,000 | ||
Allocated Net Income/ (loss) = C*B = | $ 30,400 | $ 45,600 | $ 76,000 |
Plan b: | Bell | Green | Total |
Time Devoted to the business (A) | 0.33 | 1.00 | 1.33 |
Ratio (B) = (A/Total) | 0.25 | 0.75 | |
Net Income/ (loss) for the year (C) | $ 76,000 | ||
Allocated Net Income/ (loss) = C*B = | $ 19,000 | $ 57,000 | $ 76,000 |
Plan c: | Bell | Green | Total |
Salary Allowance (A) | $ - | $ 48,000 | $ 48,000 |
Net Income/ (loss) for the year (B) | $ 76,000 | ||
Balance Net Income/ (loss) (C) = B-A | $ 28,000 | ||
Beginning Capital investment (D) | $ 104,000 | $ 156,000 | $ 260,000 |
Ratio (E) = (D/Total) | 0.40 | 0.60 | |
Balance Allocated Net Income/ (loss) (F) = C*E = | $ 11,200 | $ 16,800 | $ 28,000 |
Allocated Net Income/ (loss) =A+F = | $ 11,200 | $ 64,800 | $ 76,000 |
Plan d: | Bell | Green | Total |
Beginning Capital investment (A) | $ 104,000 | $ 156,000 | $ 260,000 |
Interest on beginning Capital Investment (B) = A*10% | $ 10,400 | $ 15,600 | $ 26,000 |
Salary Allowance (C) | $ - | $ 48,000 | $ 48,000 |
Total Interest and Salary (D) = B+C = | $ 10,400 | $ 63,600 | $ 74,000 |
Total Net Income (E) | $ 76,000 | ||
Balance Net Income (F) = (E-F) (Divided Equally) | $ 1,000 | $ 1,000 | $ 2,000 |
Allocated Net Income = (D+F) | $ 11,400 | $ 64,600 | $ 76,000 |
Year-3 | |||
Plan a: | Bell | Green | Total |
Beginning Capital investment (A) | $ 104,000 | $ 156,000 | $ 260,000 |
Ratio (B) = (A/Total) | 0.40 | 0.60 | |
Net Income/ (loss) for the year (C) | $ 188,000 | ||
Allocated Net Income/ (loss) = C*B = | $ 75,200 | $ 112,800 | $ 188,000 |
Plan b: | Bell | Green | Total |
Time Devoted to the business (A) | 0.33 | 1.00 | 1.33 |
Ratio (B) = (A/Total) | 0.25 | 0.75 | |
Net Income/ (loss) for the year (C) | $ 188,000 | ||
Allocated Net Income/ (loss) = C*B = | $ 47,000 | $ 141,000 | $ 188,000 |
Plan c: | Bell | Green | Total |
Salary Allowance (A) | $ - | $ 48,000 | $ 48,000 |
Net Income/ (loss) for the year (B) | $ 188,000 | ||
Balance Net Income/ (loss) (C) = B-A | $ 140,000 | ||
Beginning Capital investment (D) | $ 104,000 | $ 156,000 | $ 260,000 |
Ratio (E) = (D/Total) | 0.40 | 0.60 | |
Balance Allocated Net Income/ (loss) (F) = C*E = | $ 56,000 | $ 84,000 | $ 140,000 |
Allocated Net Income/ (loss) =A+F = | $ 56,000 | $ 132,000 | $ 188,000 |
Plan d: | Bell | Green | Total |
Beginning Capital investment (A) | $ 104,000 | $ 156,000 | $ 260,000 |
Interest on beginning Capital Investment (B) = A*10% | $ 10,400 | $ 15,600 | $ 26,000 |
Salary Allowance (C) | $ - | $ 48,000 | $ 48,000 |
Total Interest and Salary (D) = B+C = | $ 10,400 | $ 63,600 | $ 74,000 |
Total Net Income (E) | $ 188,000 | ||
Balance Net Income (F) = (E-F) (Divided Equally) | $ 57,000 | $ 57,000 | $ 114,000 |
Allocated Net Income = (D+F) | $ 67,400 | $ 120,600 | $ 188,000 |
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