Rivera, Sampson, and Elliott are partners in a commercial plumbing business. Rivera and Sampson have also started another contracting company and have cash flow needs, which require periodic distributions from the partnership. In order to deal fairly with the level of partnership withdrawals, the partnership agreement calls for profit sharing as follows:Component Rivera Sampson ElliottSalaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$80,000 $80,000 $100,000Bonus on income after the bonus . . . . . . . . . . .0% 0% 10%Interest on ‘‘average net capital’’ . . . . . . . . . . . 0% 10% 10%Percentage of remaining profits. . . . . . . . . . . . .0% 30% 40%‘‘Average net capital’’ is determined by netting the partners’ drawing accounts against their capital accounts and weighting the net amounts for the appropriate portion of the year. On March 31 and September 30, $40,000 is allocated to each partner’s capital account in anticipation of the annual actual amount of profit. Activity in the drawing and capital accounts is as follows for the current calendar year:Drawing Account Rivera Sampson ElliottBeginning balance January 1 . . . . . . . . . . .$ — $ — $ —March 31 draws . . . . . . . . . . . . . . . . . . . . . . . 30,000 40,000 —June 30 draws . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 25,000 30,000September 30 draws . . . . . . . . . . . . . . . . . . . 20,000 50,000 20,000Capital AccountBeginning balance January 1 . . . . . . . . . . . .40,000 50,000 70,000March 31 anticipated profit allocation . . 40,000 40,000 40,000March 31 capital investment . . . . . . . . . . . — — 40,000September 30 anticipated profit allocation 40,000 40,000 40,000September 30 loan conversion . . . . . . . . . . . — 15,000 —Sampson had loaned the partnership money in the past, and the transaction was properly classified as a loan payable on the statements of the partnership. On September 30, the loan and accrued interest totaling $15,000 were converted from a loan payable to a capital investment in the partnership.Determine how the current-year profit of $330,000 is to be allocated among the partners.
Rivera, Sampson, and Elliott are partners in a commercial plumbing business. Rivera and Sampson have also started another contracting company and have cash flow needs, which require periodic distributions from the
Component Rivera Sampson Elliott
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$80,000 $80,000 $100,000
Bonus on income after the bonus . . . . . . . . . . .0% 0% 10%
Interest on ‘‘average net capital’’ . . . . . . . . . . . 0% 10% 10%
Percentage of remaining profits. . . . . . . . . . . . .0% 30% 40%
‘‘Average net capital’’ is determined by netting the partners’ drawing accounts against their capital accounts and weighting the net amounts for the appropriate portion of the year. On March 31 and September 30, $40,000 is allocated to each partner’s capital account in anticipation of the annual actual amount of profit. Activity in the drawing and capital accounts is as follows for the current calendar year:
Drawing Account Rivera Sampson Elliott
Beginning balance January 1 . . . . . . . . . . .$ — $ — $ —
March 31 draws . . . . . . . . . . . . . . . . . . . . . . . 30,000 40,000 —
June 30 draws . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 25,000 30,000
September 30 draws . . . . . . . . . . . . . . . . . . . 20,000 50,000 20,000
Capital Account
Beginning balance January 1 . . . . . . . . . . . .40,000 50,000 70,000
March 31 anticipated profit allocation . . 40,000 40,000 40,000
March 31 capital investment . . . . . . . . . . . — — 40,000
September 30 anticipated profit allocation 40,000 40,000 40,000
September 30 loan conversion . . . . . . . . . . . — 15,000 —
Sampson had loaned the partnership money in the past, and the transaction was properly classified as a loan payable on the statements of the partnership. On September 30, the loan and accrued interest totaling $15,000 were converted from a loan payable to a capital investment in the partnership.
Determine how the current-year profit of $330,000 is to be allocated among the partners.
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