Chapter 12, Problem 3PA

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

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

# Financial statements for partnershipThe 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:The balance in Yost’s capital account includes an additional investment of $10,000 made on April 10, 20Y3.Instructions 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. Prepare a statement of partnership equity for 20Y3. 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 Â$395,300 Operating expenses: Â Â Â Â Â Â  Salary expense $154,500 Â Â Â Â Â Depreciation expenseâ€”building$15,700 Â Â Â Â Â  Property tax expense $12,000 Â Â Â Â Â Heating and lighting expense$8,500 Â Â Â Â Â  Supplies expense $6,000 Â Â Â Â Â Depreciation expenseâ€”office equipment$5,000 Â Â Â Â Â  Miscellaneous expense $3,600 Â Â Â Â Â Â Â Â Â Â Â Total operating expenses Â$205,300 Net income Â $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.

 Â Â L Y Total Salary allowanceâ€¦â€¦â€¦â€¦â€¦â€¦â€¦ $45,000$54,700 $99,700 Interest allowanceâ€¦â€¦â€¦â€¦â€¦$13,500 (1) $7,800 (2)$21,300 Remaining income (1:1)â€¦â€¦â€¦â€¦ $34,500$34,500 $69,000 Net incomeâ€¦â€¦â€¦â€¦â€¦$93,000 $97,000$190,000

Â Table (2)

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

Interest Allowance is at 10%:

â€‰â€‰â€‰â€‰â€‰â€‰â€‰â€‰â€‰Interestâ€‰Allowanceâ€‰ofâ€‰L}â€‰

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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