David and Warren had capital balances of $140,00 and $160,000 respectively at th

Question

David and Warren had capital balances of $140,00 and $160,000 respectively at the beginning of the current fiscal year. The Articles of partnership provide for salary allowances of $25,000 and $30,000 respectively, an allowance of interest at 12% on the capital balance at the beginning of the year, with the remaining net income divided equally. Net income for the current year was $120,000.

A) Present the income division section of the income statement for the current year.

B) Assuming that the net income had been $50,000 instead of $120,000, present the income division section of the income statement for the current year.

Explanation / Answer

(A) Income statement Salary to Income for the year $120,000 David $25,000 Warren $30,000 55,000 Interest on capital David $16,800 Warren $19,200 36,000 Share of Income David $14,500 Warren $14,,500 29,000 ______ 120,000 120,000 ====== ======= (B) Income statement Salary to Income for the year $50,000 David $25,000 Loss transferred Warren $30,000 55,000 David 15,500 Interest on capital Warren 15,500 31,000 David $16,800 Warren $19,200 36,000 ______ 81,000 81,000 ====== =======

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