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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Partner bonuses, statement of partnership equity

The partnership of Angel Investor Associates began operations on January 1, 20Y5, with contributions from two partners as follows:

Dennis Overton $180.000
Ben Testerman 120.000

The following additional partner transactions took place during the year:

  1. 1. In early January, Randy Campbell is admitted to the partnership by contributing $75.000 cash for a 20% interest.
  2. 2. Net income of $150,000 was earned in 20Y5. In addition, Dennis Overton received a salary allowance of $40.000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting Campbell.
  3. 3. The partners' withdrawals are equal to half of the increase in their capital balances from salary allowance and income.

Prepare a statement of partnership equity for the year ended December 31, 20Y5.

To determine

Partnership

It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

To prepare:  The statement of partnership equity for the year ended December 31, 20Y5.

Explanation

The statement of partnership equity for the year ended December 31, 20Y5 is as follows:

Table (1)

W. N-1

Calculation of partners’ withdrawal  

Partners’ withdrawal =12×(SalaryAllowance+RemainingIncome)

D’swithdrawal =12×(SalaryAllowance+RemainingIncome)=12×($40,000+$52,800)=$46,400

B’swithdrawal =12×(SalaryAllowance+RemainingIncome)=12×($35,200+$0)=$17,600

R’swithdrawal =12×(SalaryAllowance+RemainingIncome)=12×($22,000+$0)=$11,000

W

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