Chapter 12, Problem 3PB

### 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 partnershipsThe 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:The balance in Xue’s capital account includes an additional investment of $20,000 made on May 5, 20Y2.Instructions 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. Prepare a statement of partnership equity for 20Y2. 3. Prepare a balance sheet as of the end of 20Y2. 1. To determine Prepare income statement for 20Y2, 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 20Y2 of R&X is as follows:  R&X Income Statement For the Year Ended December 31, 20Y2 Professional fees Â$555,300 Operating expenses: Â Â Â Â Â Â  Salary expense $384,900 Â Â Â Â Â Depreciation expenseâ€”building$12,900 Â Â Â Â Â  Heating and lighting expense $10,500 Â Â Â Â Â Depreciation expenseâ€”office equipment$6,300 Â Â Â Â Â  Property tax expense $3,200 Â Â Â Â Â Supplies expense$3,000 Â Â Â Â Â  Miscellaneous expense $2,500 Â Â Â Â Â Â Â Â Â Â Â Total operating expenses Â$423,300 Net income Â $132,000 Â 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.

 Â R X Total Salary allowanceâ€¦â€¦â€¦â€¦â€¦â€¦â€¦ $50,000$65,000 $115,000 Interest allowanceâ€¦â€¦â€¦â€¦â€¦ 15,000 (1) 16,200 (2)$31,200 Remaining income (loss) (1:1)â€¦â€¦â€¦â€¦ -$7,100 -$7,100 -$14,200 Net incomeâ€¦â€¦â€¦â€¦â€¦$57,900 $74,100$132,000

Â Table (2)

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

Interest Allowance is at 12%:

Working note 1:

â€‰â€‰â€‰â€‰â€‰â€‰â€‰â€‰â€‰Interestâ€‰Allowanceâ€‰ofâ€‰R

2.

To determine

Prepare statement of partnership equity for 20Y2.

3.

To determine

Prepare balance sheet at the end of 20Y2.

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