Explanation 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. Working Notes for determining the division of net income between partner H and N under different plans: Net Income $4,20,000 Net Income $1,50,000 H N H N Plan (a) Income sharing ratio under this plan is equal. So, the ratio is 1:1 Distribution of Net Income (1:1) $210,000 $210,000 $75,000 $75,000 Plan (b) Income sharing ratio under this plan is the ratio of original investment by H and N i.e. $50,000 & $75,000 respectively. So, the ratio is 2:3 Distribution of Net Income (2:3) $168,000 $252,000 $60,000 $90,000 Plan (c) Income sharing ratio under this plan is the ratio of time devoted by H and N i.e. full time & 1/2 time respectively. So, the ratio is 2:1 Distribution of Net Income (2:1) $280,000 $140,000 $100,000 $50,000 Plan (d) Interest allowance (1) $5,000 $7,500 $5,000 $7,500 Income sharing ratio under this plan is 3:2. Any income left after allowing interest on capital will be distributed in 3:2 ratio. Remaining Income (3:2) $244,500 $163,000 $82,500 $55,000 Net Income $249,500 $170,500 $87,500 $62,500 Plan (e) Interest allowance (1) $5,000 $7,500 $5,000 $7,500 Salary allowance $38,000 $19,000 $38,000 $19,000 Any excess income left after deducting interest and salary allowance will be distributed among partners equally. So, the income or loss sharing ratio is 1:1 Remaining Income (1:1) $175,250 $175,250 $40,250 $40,250 Net Income $218,250 $201,750 $83,250 $66,750 Plan (f) Interest allowance (1) $5,000 $7,500 $5,000 $7,500 Salary allowance $38,000 $19,000 $38,000 $19,000 Bonus allowance (2) $72,600 $18,600 Any excess income left after deducting interest, bonus and salary allowance will be distributed among partners equally. So, the income or loss sharing ratio is 1:1 Remaining Income (1:1) $138,950 $138,950 $30,950 $30,950 Net Income $254,550 $165,450 $92,550 $57,450 Table (2) Calculation of Interest Allowances – (1) Interest Allowance = ( Capital balance × 10 100 ) Share of H:

15th Edition

ISBN: 9781337272124

Author: Carl Warren, James M. Reeve, Jonathan Duchac

Publisher: Cengage Learning

See similar textbooks

Question

Chapter 12, Problem 2PB

To determine

Determine division of net income of $420,000and $150,000under different plans.

Expert Solution & Answer

Chapter 12 Solutions

Financial Accounting

Ch. 12 - Prob. 1DQ Ch. 12 - Prob. 2DQ Ch. 12 - Prob. 3DQ Ch. 12 - Prob. 4DQ Ch. 12 - Prob. 5DQ Ch. 12 - Prob. 6DQ Ch. 12 - Prob. 7DQ Ch. 12 - Prob. 8DQ Ch. 12 - Prob. 9DQ Ch. 12 - Prob. 10DQ

Ch. 12 - Prob. 1PEA Ch. 12 - Prob. 1PEB Ch. 12 - Prob. 2PEA Ch. 12 - Prob. 2PEB Ch. 12 - Prob. 3PEA Ch. 12 - Prob. 3PEB Ch. 12 - Prob. 4PEA Ch. 12 - Prob. 4PEB Ch. 12 - Prob. 5PEA Ch. 12 - Liquidating partnerships Prior to liquidating...Ch. 12 - Prob. 6PEA Ch. 12 - Prob. 6PEB Ch. 12 - Revenue per employee Niles and Cohen, CPAs earned...Ch. 12 - Prob. 7PEB Ch. 12 - Prob. 1E Ch. 12 - Prob. 2E Ch. 12 - Prob. 3E Ch. 12 - Prob. 4E Ch. 12 - Prob. 5E Ch. 12 - Prob. 6E Ch. 12 - Prob. 7E Ch. 12 - Prob. 8E Ch. 12 - Prob. 9E Ch. 12 - Prob. 10E Ch. 12 - Prob. 11E Ch. 12 - Prob. 12E Ch. 12 - Prob. 13E Ch. 12 - Prob. 14E Ch. 12 - Prob. 15E Ch. 12 - Prob. 16E Ch. 12 - Statement of members equity, admitting new member...Ch. 12 - Distribution of cash upon liquidation Hewitt and...Ch. 12 - Distribution of cash upon liquidation David Oliver...Ch. 12 - Liquidating partnershipscapital deficiency Lewis,...Ch. 12 - Prob. 21E Ch. 12 - Prob. 22E Ch. 12 - Statement of partnership liquidation After closing...Ch. 12 - Prob. 24E Ch. 12 - Prob. 25E Ch. 12 - Revenue per professional staff The accounting firm...Ch. 12 - Prob. 27E Ch. 12 - Prob. 1PA Ch. 12 - Prob. 2PA Ch. 12 - Prob. 3PA Ch. 12 - Prob. 4PA Ch. 12 - Statement of partnership liquidation After the...Ch. 12 - Prob. 6PA Ch. 12 - Prob. 1PB Ch. 12 - Prob. 2PB Ch. 12 - Prob. 3PB Ch. 12 - Prob. 4PB Ch. 12 - Statement of partnership liquidation After the...Ch. 12 - On August 3, the firm of Chapelle, Rock, and Pryor...Ch. 12 - Prob. 1CP Ch. 12 - Prob. 3CP Ch. 12 - Prob. 4CP

Knowledge Booster

Similar questions

The partnership of Tatum and Brook shares profits and losses in a 60:40 ratio respectively after Tatum receives a 10,000 salary and Brook receives a 15,000 salary. Prepare a schedule showing how the profit and loss should be divided, assuming the profit or loss for the year is: A. $40,000 B. $25,000 C. ($5,000) In addition, show the resulting entries to each partners capital account. Tatums capital account balance is $50,000 and Brooks is $60,000.
The partnership of Magda and Sue shares profits and losses in a 50:50 ratio after Mary receives a $7,000 salary and Sue receives a $6,500 salary. Prepare a schedule showing how the profit and loss should be divided, assuming the profit or loss for the year is: A. $10,000 B. $5,000 C. ($12,000) In addition, show the resulting entries to each partners capital account.

Recommended textbooks for you

College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
SWFT Comprehensive Vol 2020
Accounting
ISBN:9780357391723
Author:Maloney
Publisher:Cengage
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College