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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 partnerships

The ledger of Camila Ramirez and Ping Xue, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 20Y2:

Ramirez and Xue

Trial Balance

December 31, 20Y2

  Debit Balances Credit Balances
Cash 70,300  
Accounts Receivable 33,600  
Supplies 5,800  
Land 128,000  
Building 175,000  
Accumulated Depreciation—Building 80,000
Office Equipment 42,000  
Accumulated Depreciation—Office Equipment 25,300
Accounts Payable 12,400
Salaries Payable 10,000
Camila Ramirez, Capital 125,000
Camila Ramirez, Drawing 35,000  
Ping Xue, Capital 155,000
Ping Xue, Drawing 50,000  
Professional Fees 555,300
Salary Expense 384,900  
Depreciation Expense—Building 12,900  
Heating and Lighting Expense 10,500  
Depreciation Expense—Office Equipment 6,300  
Property Tax Expense 3,200  
Supplies Expense 3,000  
Miscellaneous Expense 2,500  
  963,000 963,000

The balance in Xue's capital account includes an additional investment of $20,000 made on May 5. 20Y2.

Instructions

  1. 1. Prepare an income statement for 20Y2, indicating the division of net income. The partnership agreement provides for salary allowances of $50,000 to Ramirez and $65,000 to Xue, allowances of 12% 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 20Y2.
  3. 3. Prepare a balance sheet as of the end of 20Y2.

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 20Y2, indicating the division of the income.

Explanation

The income statement for 20Y2 of R&X is as follows:

R&X
Income Statement
For the Year Ended December 31, 20Y2
Professional fees $555,300
Operating expenses:
     Salary expense $384,900
     Depreciation expense—building $12,900
     Heating and lighting expense $10,500
     Depreciation expense—office equipment $6,300
     Property tax expense $3,200
     Supplies expense $3,000
     Miscellaneous expense $2,500
           Total operating expenses $423,300
Net income $132,000

 Table (1)

Hence, the net income of R&X for the year 20Y2 is $132,000.

Division of net income:

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

R X Total
Salary allowance………………… $50,000 $65,000 $115,000
Interest allowance……………

15,000

(1)

16,200

(2)

$31,200
Remaining income (loss) (1:1)………… -$7,100 -$7,100 -$14,200
Net income…………… $57,900 $74,100 $132,000

 Table (2)

Working note for the calculation of Interest allowance of R & X

Interest Allowance is at 12%:

InterestAllowanceofR}

2.

To determine

To prepare: The statement of partnership equity for 20Y2.

3.

To determine

To prepare: The balance sheet at the end of 20Y2.

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