Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San D
ID: 2393803 • Letter: G
Question
Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $410,000, $340,000, and $170,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:
Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.
Profits and losses are allocated according to the following plan:
A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.
Interest is credited to the partners’ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).
An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed.
Any remaining partnership profit or loss is to be divided evenly among all partners.
Because of financial shortfalls encountered in getting the business started, Gray invests an additional $10,000 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet’s entrance into the firm; the general provisions continue to be applicable.
The billable hours for the partners during the first three years of operation follow:
The partnership reports net income for 2016 through 2018 as follows:
Each partner withdraws the maximum allowable amount each year.
Determine the allocation of income for each of these three years.
Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2018.
2016 2017 2018 Gray 1,930 3,100 2,080 Stone 1,640 2,500 1,820 Lawson 3,300 1,580 1,510 Monet 0 1,390 1,780Explanation / Answer
available$13,529$0$0-$3,529$10,000Transfer xx Capital xxxxxxxxxxxxxxxxxxxxxxxxxxx to be xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx building is xxxxxxxxxxx sold xxx xxxxxxx to xxxx total cash xx $110,000 The xxxxxxxxxxx are xxxx xxxxx leaving xxxx balance of xxxxxxx This cash xx to xx xxxxxxxxxxx to xxx partners How xxxx of this xxxxx will xxxx xxxxxxx receive xx profits and xxxxxx are allocated xx Adams, xxxxxx xxxxxxx and xxxxx on a xxxxxxx basis, respectively? Cash xxxxx AssetsLiabilitiesAdamsBakerCarvilDobbsTotal xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xx Building$70,000-$1,20,000 -$5,000-$15,000-$15,000-$15,000-$50,000Balance xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx of Realization xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx available$1,10,000$0$30,000$62,000-$24,000$6,000$36,000$80,000Transfer of xxxxxxx loss -$8,348$24,000-$6,261-$9,391$0Balance xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xx Capital xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx available$1,10,000$0$30,000$53,529$0$0$26,471$80,000Cash Paid-$1,10,000 -$30,000-$53,529$0$0-$26,471-$80,000Assume xxxx profits and xxxxxx are xxxxxxxxx xx Adams, xxxxxx Carvil, and xxxxx on a xxxxxxx basis, xxxxxxxxxxxx xxx much xxxxx must the xxxx receive from xxxxxxx the xxxx xxx building xx ensure that xxxxxx receives a xxxxxxxxxxxxx Value xx xxxxxxxxxxxxxxxxxxxx in xxxxxxx account$60,000The selling xxxxx should be xxxxxxx of xxxxxxxx xx that xxx realization loss xxxxxx be maximum xx $141,000 xxxx xxxx give xxxxxx $391 as xxxxxxxx below: AdamsBakerCarvilDobbsTotalCapital Account x Balance$80,000$30,000$60,000$90,000$2,60,000Realization xxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx available$65,900-$12,300$3,600$61,800$1,19,000Transfer xx Capital loss-$4,278$12,300-$3,209-$4,813$0Cash xx be distributed$61,622$0$391$56,987$1,19,000(5)March, xxxxxx and xxx xxxx been xx partnership for x number of xxxxx The xxxxxxxx xxxxxxxx all xxxxxxx and losses xx a 2:3:1 xxxxxx respectively xxxxxxxxx xxxx partner xxx become personally xxxxxxxxx and, thus, xxx partners xxxx xxxxxxx to xxxxxxxxx the business xx hopes of xxxxxxxxx their xxxxxxxx xxxxxxxxx problems xx of September xx the partnership’s xxxxxxx sheet xx xx follows:Cash x 11,000 Liabilities x 61,000Accounts receivable xxxxxx March, xxxxxxx xxxxxxxxxxxxxxx 74,000April, xxxxxxx 75,000Land, building, xxx May, capital xxxxxxxxxxxxxxx (net) xxxxxx xxxxx liabilities xxx capital $207,000Total xxxxxx $207,000Prepare journal xxxxxxx for xxx xxxxxxxxx transactions:a xxxx all inventory xxx $56,000 cash x Paid xxxxxx xx liquidation xxxxxxxx c Paid xxxxxxx of the xxxxxxxxxxxxxxx liabilitie.....
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