FROTO, BILBO AND GANDOFF ARE THE 3 PARTNERS IN THE LAW FIRM OF FBG. INFORMATION

Question

FROTO, BILBO AND GANDOFF ARE THE 3 PARTNERS IN THE LAW FIRM OF FBG. INFORMATION ABOUT THE PARTNERSHIP IS AS FOLLOWS:

FROTO: 50% PARTNER, CAPITAL ACCOUNT JANUARY 1, 2015 $50,000 RECEIVES SALARY OF $40,000

BILBO: 20% PARTNER, CAPITAL ACCOUNT JANUARY 1, 2015 $70,000 RECEIVES SALARY OF $20,000

GANDOFF: 30% PARTNER, CAPITAL ACCOUNT JANUARY 1, 2015 $111,000 RECEIVES NO SALARY

The partnership pays interest of 12% on January 1, capital account. In addition to her salary, Froto takes $500 out of her capital account monthly. Gandoff takes $1000 out of his capital account each month.

Income before partner salaries or interest on capital is as follows:

2015 $225,000

2016 $400,000

2017 $333,000

REQUIRED: FOR 2015, 2016 AND 2017

DETERMINE THE AMOUNT OF THE PARTNERSHIP INCOME ALLOCATED TO EACH PARTNER THE CAPITAL ACCOUNT BALANCE FOR EACH PARTNER ON DECEMBER 31, 2015, 2016 AND 2017.

Explanation / Answer

Working

2015

Income before partner salaries or interest on capital = 225000

less : salary (40000+20000) = $ 60000

Less : Interest on capital (6000+8400+13320) = $ 27720

Income after partner salaries or interest on capital = 137280

Income before partner salaries or interest on capital is allocated in th ratio of 50%: 30%:20%

2016

Income before partner salaries or interest on capital = 400000

less : salary (40000+20000) = $ 60000

Less : Interest on capital (14237+14350+16773) = $ 45360

Income after partner salaries or interest on capital = 294640

Income before partner salaries or interest on capital is allocated in th ratio of 50%: 30%:20%

2017

Income before partner salaries or interest on capital = 333000

less : salary (40000+20000) = $ 60000

Less : Interest on capital (32904+26679+24417) = $ 84000

Income after partner salaries or interest on capital = 189000

Income before partner salaries or interest on capital is allocated in th ratio of 50%: 30%:20%

2015 FROTO BILBO GANDOFF CAPITAL ACCOUNT JANUARY 1, 2015                 50,000            70,000          111,000 Income Allocation Salary Income                 40,000            20,000                     -   Interest Income                   6,000              8,400            13,320 Net Income Shared (137280)                 68,640            41,184            27,456 Total Income Allocated               114,640            69,584            40,776 Drawing (Salary & cash withdrawl)                 46,000            20,000            12,000 CAPITAL ACCOUNT DECEMBER 31, 2015               118,640          119,584          139,776

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