2. On January 1, Year 1, Johnson (0), Smith (S), and Henry (H) formed a legal se

Question

2. On January 1, Year 1, Johnson (0), Smith (S), and Henry (H) formed a legal services rtnership. Initially, J contributed $12,000,000, S contributed $18,000,000, and H contributed pa $30,000,000 for a partnership profit and loss sharing ratio of 20%-30%. and SO%, respe of the original partnership agreement, the partnership will pay H an annual salary of $100 overseeing daily business activity. In addition, the partners agreed H should receive a 10% guaranteed ctively. As part ,000 for bonus of any partnership profits prior to distributing any earnings to the individual partners. The partnership will pay interest of 2% on the partners' capital balances at each fiscal year end. The salary, guaranteed bonus, and interest are distributed to the partners and not reinvested in the partnership. The partnership generated net profit of $4,000,000 during its first year of operations. Prepare a schedule showing how much profit/loss will be distributed to each partner

Explanation / Answer

Particulars Net income Johnson Smith Henry Profit sharing ratio 20% 30% 50% Capital contributed          12,000,000          18,000,000          30,000,000 Net income                    4,000,000 Guaranteed bonus -400000 400000 Balance                    3,600,000          12,000,000          18,000,000          30,400,000 Salary to H -100000 100000 Interest on capital -1200000 240000 360000 600000 Balance                    2,300,000          12,240,000          18,360,000          31,100,000 Share of balance profit                  (2,300,000) 460000 690000 1150000 Balance                                    -            12,700,000          19,050,000          32,250,000

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