Concept explainers
a.
Determine the allocation of income for each of the three years.
a.

Explanation of Solution
Allocation of income for the year 2016
Particulars | Person G | Person S | Person L | Total |
Net income | $ 65,000 | |||
Compensation allowance | $ 13,680 | $ 11,520 | $ 10,400 | $ 35,600 |
Net profit after allowance | $ 29,400 | |||
Interest on capital | $ 25,928 | $ 21,600 | $ 10,800 | $ 58,328 |
Net income after interest | $ (28,928) | |||
Distribution among partners | $ (9,643) | $ (9,643) | $ (9,642) | $ 28,928 |
Total | $ 29,965 | $ 23,477 | $ 11,558 | $ - |
Table: (1)
Allocation of income for the year 2017
Particulars | Person G | Person S | Person L | Person M | Total |
Net income | $ (20,400) | ||||
Compensation allowance | $ 14,400 | $ 12,000 | $ 11,040 | $ 9,520 | $ 46,960 |
Net profit after allowance | $ (67,360) | ||||
Interest on capital | $ 27,368 | $ 22,257 | $ 11,107 | $ 20,244 | $ 80,976 |
Net income after interest | $ (148,336) | ||||
Distribution among partners | $ (37,084) | $ (37,084) | $ (37,084) | $ (37,084) | $ 148,336 |
Total | $ 4,684 | $ (2,827) | $ (14,937) | $ (7,320) | $ 0 |
Table: (2)
Allocation of income for the year 2018
Particulars | Person G | Person S | Person L | Person M | Total |
Net income | $ 152,800 | ||||
Compensation allowance | $ 15,040 | $ 12,960 | $ 10,480 | $ 12,640 | $ 51,120 |
Net profit after allowance | $ 101,680 | ||||
Interest on capital | $ 25,193 | $ 19,692 | $ 8,204 | $ 17,341 | $ 70,430 |
Net income after interest | $ 31,250 | ||||
Bonus | $ 2,604 | $ 2,604 | $ 5,208 | ||
Net income after bonus | $ 26,042 | ||||
Distribution among partners | $ 6,511 | $ 6,511 | $ 6,510 | $ 6,510 | $ 26,042 |
Total | $ 49,348 | $ 41,767 | $ 25,194 | $ 36,491 | $ - |
Table: (3)
Working note
Calculate person G’s monthly capital balance
Now, calculate the monthly capital for person G
Calculate interest on capital to person G
Calculate ending capital balances of partners
Particulars | Person G | Person S | Person L | Total |
Beginning balance | $ 210,000 | $ 180,000 | $ 90,000 | $ 480,000 |
Additional investment | $ 9,100 | $ 9,100 | ||
Income allocation | $ 29,965 | $ 23,477 | $ 11,558 | $ 65,000 |
Drawings | $ (21,000) | $ (18,000) | $ (9,000) | $ (48,000) |
Ending balances | $ 228,065 | $ 185,477 | $ 92,558 | $ 506,100 |
Table: (4)
Calculate capital of person M
Now, capital of person M
Calculate ending capital balances of partners for 2017
Particulars | Person G | Person S | Person L | Person M | Total |
Beginning balance | $ 228,065 | $ 185,477 | $ 92,558 | $ 168,700 | $ 674,800 |
Income allocation | $ 4,684 | $ (2,827) | $ (14,937) | $ (7,320) | $ (20,400) |
Drawings | $ (22,806) | $ (18,548) | $ (9,256) | $ (16,870) | $ (67,480) |
Ending balances | $ 209,943 | $ 164,102 | $ 68,365 | $ 144,510 | $ 586,920 |
Table: (5)
Calculate the amount of bonus
Now, bonus is
Bonus is divided among the two partners equally
Calculate bonus share of partners
b.
Prepare a statement of partners’ capital for the year ending December 31, 2018.
b.

Explanation of Solution
Statement of partners’ capital for the year ending December 31, 2018.
Particulars | Person G | Person S | Person L | Person M | Total |
Beginning balance | $ 209,943 | $ 164,102 | $ 68,365 | $ 144,510 | $ 586,920 |
Income allocation | $ 49,348 | $ 41,767 | $ 25,194 | $ 36,491 | $ 152,800 |
Drawings | $ (20,994) | $ (16,410) | $ (6,837) | $ (14,451) | $ (58,692) |
Ending balances | $ 238,297 | $ 189,459 | $ 86,722 | $ 166,550 | $ 681,028 |
Table: (6)
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Chapter 14 Solutions
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