FUNDAMENTAL ACCOUNTING PRINCIPLES
FUNDAMENTAL ACCOUNTING PRINCIPLES
24th Edition
ISBN: 9781260811704
Author: Wild
Publisher: MCG
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Chapter 12, Problem 2APSA
To determine

Concept Introduction:

An unincorporated association in which two or more people engage in business as co-owners for profit is known as partnership. In choosing the proper business form one of the many factors which are considered are generally taxes and liability risk. Partners can contribute as much capital to the partnership as they want while forming a partnership.

To calculate:

Prepare three tables with the following column headings.Complete the tables,one for each of the first three years, by showing how to allocate partnership income or loss to the partners under each of the four plans being considered.

Expert Solution & Answer
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Answer to Problem 2APSA

    FUNDAMENTAL ACCOUNTING PRINCIPLES, Chapter 12, Problem 2APSA , additional homework tip  1
    FUNDAMENTAL ACCOUNTING PRINCIPLES, Chapter 12, Problem 2APSA , additional homework tip  2
    FUNDAMENTAL ACCOUNTING PRINCIPLES, Chapter 12, Problem 2APSA , additional homework tip  3

Explanation of Solution

The partnership income or loss should be allocated in the above manner under the four plans.

    Year 1
    Income(Loss) Sharing PlanCalculationsWattsLyon
    Plan A

      (36000)×42105

      (36000)×63105

    (14400)

    (21600)

    Plan B

      (36000)×13

      (36000)×23

    (12000)

    (24000)

    Plan CSalary allowanceRemaining bal=(-36000-72000=-108000

      (108000)×42105

      (108000)×63105

    -(43200)72000

    (64800)

    Total(43200)7200
    Plan DSalary allowance10% interestRemaining bal=(-36000-72000-4200-6300)=(118500)-

    4200

    (59250)

    72000

    6300

    (59250)

    Total(55050)19050
    Year 2
    Income(Loss) Sharing PlanCalculationsWattsLyon
    Plan A90000×42/105

    90000×63/105

    36000

    54000

    Plan B90000×1/3

    90000×2/3

    30000

    60000

    Plan CSalary allowanceRemaining bal

    (90000-72000=18000)

    18000×42/105

    18000×63/105

    -

    7200

    72000

    10800

    Total$7200$82800
    Plan DSalary allowance10% interestRemaining bal(90000-72000-4200-6300=7500)

    7500×1/2

    7500×1/2

    -

    4200

    3750

    72000

    6300

    3750

    Total$7950$82050
    Year 3
    Income(Loss) Sharing PlanCalculationsWattsLyon
    Plan A150000×42/105

    150000×63/105

    60000

    90000

    Plan B150000×1/3

    150000×2/3

    50000

    100000

    Plan CSalary allowanceRemaining bal(150000-72000=78000)

    78000×42/105

    78000×63/105

    -

    31200

    72000

    46800

    Total$31200$118800
    Plan DSalary allowance10% interestRemaining bal(150000-72000-4200-6300=67500)

    67500×1/2

    67500×1/2

    -

    4200

    33750

    72000

    6300

    33750

    Total$37950$112050

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