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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

Financial statements for partnership

The ledger of Tyler Lambert and Jay la Yost, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 20 Y3:

Lambert and Yost

Trial Balance

December 31,20Y3

  Debit Balances Credit Balances
Cash 34,000  
Accounts Receivable 47,800  
Supplies 2,000  
Land 120,000  
Building 157,500  
Accumulated Depreciation—Building   67,200
Office Equipment 63,600  
Accumulated Depreciation—Office Equipment   21,700
Accounts Payable   27,900
Salaries Payable   5,100
Tyler Lambert. Capital   135,000
Tyler Lambert. Drawing 50,000  
Jayla Yost. Capital   88,000
Jayla Yost, Drawing 60,000  
Professional Fees   395,300
Salary Expense 1 54,500  
Depreciation Expense—Building 15,700  
Property Tax Expense 12,000  
Heating and Lighting Expense 8,500  
Supplies Expense 6,000  
Depreciation Expense—Office Equipment 5,000  
Miscellaneous Expense 3,600  
  740,200 740,200

The balance in Yost's capital account includes an additional investment of $ 10,000 made on April 10, 20Y3.

Instructions

  1. 1. Prepare an income statement for 20Y3, indicating the division of net income. The partnership agreement provides for salary allowances of $45,000 to Lambert and $54r700 to Yost, allowances of 10% on each partner's capital balance at the beginning of the fiscal year, and equal division of the remaining net income or net loss.
  2. 2. Prepare a statement of partnership equity for 20Y3.
  3. 3. Prepare a balance sheet as of the end of 20Y3

1.

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:  An income statement for 20Y3, indicating the division of the income.

Explanation

The income statement for 20Y3 of L&Y is as follows:

L &Y
Income Statement
For the Year Ended December 31, 20Y3
Professional fees $395,300
Operating expenses:
     Salary expense $154,500
     Depreciation expense—building $15,700
     Property tax expense $12,000
     Heating and lighting expense $8,500
     Supplies expense $6,000
     Depreciation expense—office equipment $5,000
     Miscellaneous expense $3,600
           Total operating expenses $205,300
Net income $190,000

Table (1)

Hence, the net income of L&Y for the year 20Y3 is $190,000.

Division of net income:

The following table shows the division of net income between the partners.

 L Y Total
Salary allowance………………… $45,000 $54,700 $99,700
Interest allowance…………… $13,500 (1)

$7,800

(2)

$21,300
Remaining income (1:1)………… $34,500 $34,500 $69,000
Net income…………… $93,000 $97,000 $190,000

 Table (2)

Working note for the calculation of Interest allowance of L & Y

Interest Allowance is at 10%:

InterestAllowanceofL}Ȁ

2.

To determine

To prepare: The statement of partnership equity for 20Y3.

3.

To determine

To prepare: The balance sheet at the end of 20Y3.

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