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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem

Financial statements for partnership

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

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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 $54,700 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

Prepare income statement for 20Y3, indicating the division of the income.

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.

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.

  LYTotal
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}

2.

To determine

Prepare statement of partnership equity for 20Y3.

3.

To determine

Prepare the balance sheet at the end of 20Y3.

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