1. Bill Beck, Bruce Beck, and Barb Beck formed the BBB Partnership by making cap

ID: 2492126 • Letter: 1

Question

1. Bill Beck, Bruce Beck, and Barb Beck formed the BBB Partnership by making capital contributions of $77,400, $301,000, and $481,600, respectively. They predict annual partnership net income of $508,500 and are considering the following alternative plans of sharing income and loss: (a) equally; (b) in the ratio of their initial capital investments; or (c) salary allowances of $84,400 to Bill, $63,300 to Bruce, and $95,500 to Barb; interest allowances of 10% on their initial capital investments; and the balance shared as follows: 20% to Bill, 40% to Bruce, and 40% to Barb. Bill, Bruce, and Barb withdraw $40,500, $54,500, and $70,500, respectively, at year-end. 2.Prepare a statement of partners’ equity showing the allocation of income to the partners assuming they agree to use plan (c), that income earned is $227,700, and that Bill, Bruce, and Barb withdraw $40,500, $54,500, and $70,500, respectively, at year-end

Explanation / Answer

STATEMENT OF PARTNER’S EQUITY

PARTICULARS

BILL

BRUCE

BARB

CAPITAL CONTRIBUTION

77,400

301,000

481,600

ADD: SALARY ALLOWANCES

84,400

63,300

95,500

ADD: INTEREST ALLOWANCES

7740

30100

48160

ADD: SHARE OF PROFIT*

45540

91080

LESS: DRAWINGS

40500

54500

70500

CLOSING CAPITAL

174580

430980

645840

*IT IS ASSUMED THAT THE INCOME OF 227700 IS NET OF INTEREST AND SALARIES.