Connect 2-Semester Access Card for Fundamental Accounting Principles
Connect 2-Semester Access Card for Fundamental Accounting Principles
22nd Edition
ISBN: 9780077632755
Author: John Wild
Publisher: McGraw-Hill Education
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Chapter 12, Problem 1BPSB
To determine

Concept Introduction:

Partnership: Partnership is one of the types of business origination. Under the partnership, two or more individuals agree to form a business together and share losses and profits in the predetermined ratio.

Allocation of profits: A partnership contract usually provides for the allocation of profit or losses amongst the partners. In the case of absence of allocation method, the partnership net income or losses are allocated equally amongst the partners.

To prepare: Tables for each of the three years showing allocation of partnership income under each of the four plans

Expert Solution & Answer
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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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