P15-2. Dave, Brian, and Paul are partners in a retail appliance store. The partn
ID: 2424572 • Letter: P
Question
P15-2. Dave, Brian, and Paul are partners in a retail appliance store. The partnership was formed January 1, 2008, with each partner investing $45,000. They agreed that profits and losses are to be shared as follows:
1. Divided in the ratio of 40:30:30 if net income is not sufficient to cover salaries, bonus, and interest.
2. A net loss is to be allocated equally.
3. Net income is to be allocated as follows if net income is in excess of salaries, bonus, and interest.
a. Monthly salary allowances are:
Dave $3,500
Brian 2,500
Paul 1,500
b. Brian is to receive a bonus of 8% of net income before subtracting salaries and interest, but after subtracting the bonus.
c. Interest of 10% is allocated based on the beginning-of-year capital balances.
d. Any remainder is to be allocated equally.
Operating performance and other capital transactions were as follows:
Capital Transactions
Net Income Dave Brian Paul
Year-End (Loss) Investment Withdrawals Investment Withdrawals Investment Withdrawals
12/31/08 $(5,400) $15,000 $17,000 $15,000 $7,000 $6,000 $3,200
12/31/09 27,000 —0— 17,000 —0— 7,000 6,000 3,200
12/31/10 120,000 —0— 19,000 —0— 9,000 6,000 3,200
Required:
A. Prepare a schedule of changes in partners’ capital accounts for each of the three years.
B. Prepare the journal entry to close the income summary account to the partners’ capital accounts at the end of each year.
Explanation / Answer
A.
Schedule of changes in partners capital account is as follows:
B.
Journal entry to close the income summary account to partners capital account is as follows:
Particulars Dave Brian Paul Amount ($) Amount ($) Amount ($) Opening capital $45,000 $45,000 $45,000 Investments in 2008 Add: 15,000 15,000 6,000 Withdrawals in 2008 Less: 17,000 7,000 3,200 Net loss of 2008 divided equally Add: ($1,800) ($1,800) ($1,800) Closing capital on 31 dec 2008 $41,200 $51,200 $46,000 Investments in 2009 Add: 0 0 6,000 Withdrawals in 2009 Less: 17,000 7,000 3,200 Salary from Net income divided Add: 3,500 2,500 1,500 Interest Add: 4,120 5,120 4,600 Bonus 8% of net income after subtracting bonus Add: 2,000 Net income divided equally Add: 1,220 1,220 1,220 Closing capital as on December 31 2009 33,040 55,040 56,120 Investments in 2010 Add: 0 0 6,000 Withdrawal in 2010 Less: 19,000 9,000 3,200 Salary from Net income divided Add: 3,500 2,500 1,500 Interest Add: 3,304 5,504 5,612 Bonus 8% of net income after subtracting bonus Add: 8,889 Net income divided equally Add: 29,730 29,730 29,730 Closing capital as on December 31 2010 50,574 92,663 95,762Related Questions
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