Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Chapter 9, Problem 29P

a.

To determine

Determine the allocation of income for each of the three years.

a.

Expert Solution
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Explanation of Solution

Allocation of income for the year 2016

ParticularsPerson GPerson SPerson LTotal
     
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

ParticularsPerson GPerson SPerson LPerson MTotal
      
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

PersonG'scapitalforJantoApr=$210,000×4=$840,000PersonG'scapitalforMaytoDec=$219,100×8=$1,752,800

Now, calculate the monthly capital for person G

TotalcapitalofpersonG=$840,000+$1,752,800=$2,592,800Monthlycapital=$2,592,80012=$216,067

Calculate interest on capital to person G

Interestoncapital=$216,067×12%=$25,928

Calculate ending capital balances of partners

ParticularsPerson GPerson SPerson LTotal
     
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

M'sinvestment=25%×($506,100+M'sinvestment)M'sinvestment=126,525+0.25M'sinvestmentM'sinvestment0.25M'sinvestment=$126,5250.75M'sinvestment=$126,525

Now, capital of person M

M'sinvestment=$126,5250.75=$168,700

Calculate ending capital balances of partners for 2017

ParticularsPerson GPerson SPerson LPerson MTotal
      
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

2[($31,250x)×10%]=x($62,5002x)×10%=x$6,250x5=x$31,250x5=x

Now, bonus is

$31,250x=5x$31,250=6xx=$31,2506x=$5,208

Bonus is divided among the two partners equally

Calculate bonus share of partners

Bonustopartners=$5,2082=$2,604

b.

To determine

Prepare a statement of partners’ capital for the year ending December 31, 2018.

b.

Expert Solution
Check Mark

Explanation of Solution

Statement of partners’ capital for the year ending December 31, 2018.

ParticularsPerson GPerson SPerson LPerson MTotal
      
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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