Loose Leaf For Advanced Financial Accounting
12th Edition
ISBN: 9781260165111
Author: Christensen, Theodore E., COTTRELL, David
Publisher: McGraw-Hill Education
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Question
Chapter 15, Problem 15.12P
To determine
Allocation of
The preparation of income distribution schedule using the given information.
Expert Solution
Answer to Problem 15.12P
E is entitled to get $24,740, N $27,180 and W will get $27,040 of total profit.
Explanation of Solution
| E | N | W | Total | |
| Profit ratio | 3 | 3 | 4 | 10 |
| Ending capital | $28,000 | $40,000 | $48,000 | |
| Net income | $78,960 | |||
| Interest on capital 10% | 2,800 | 4,000 | 4,800 | (11,600) |
| Salaries | 15,000 | 20,000 | 18,000 | (53,000) |
| Bonus | 3,760 | (3,760) | ||
| Residual income | $10,600 | |||
| Allocation of income 3:3:4 | 3,180 | 3,180 | 4,240 | (10600) |
| Total | $24,740 | $27,180 | $27,040 | 0 |
Bonus = .05(Net income − bonus)
Bonus = .05(78,960 − bonus)
20B = $78,960 − B
21B = $78,960
B = $78,960/21 = $3,760
To determine
Allocation of profit and loss to partners: Allocation of profit and loss to partners will be in accordance with partnership agreement. If the entity does not have formal partnership agreement, section 401 of the UPA 1997 indicates that profit and losses are distributed equally among partners. Profit distributions are not included in the partnership’s income statement, but recorded directly into partner’s capital accounts, not treated as expense items.
The preparation of income distribution schedule where interest on capital is calculated using weighted average capital balances.
Expert Solution
Answer to Problem 15.12P
Income received by each partner as per income distribution schedule is
E = $21,078
N = $22,858
W = $24,144
Explanation of Solution
Determination of average capital
Average capital for E
| Date | Debit | Credit | Balance | Months maintained | Months x balance |
| 1/1 | $30,000 | 4 | $120,000 | ||
| 5/1 | 6,000 | 36,000 | 4 | 144,000 | |
| 9/1 | 8,000 | 28,000 | 4 | 112,000 | |
| Total | 12 | $376,000 |
Average capital $376,000 / 12 months = $31,333
Average capital for N
| Date | Debit | Credit | Balance | Months maintained | Months x balance |
| 1/1 | $40,000 | 2 | $80,000 | ||
| 3/1 | $9,000 | 31,000 | 4 | 124,000 | |
| 7/1 | $5,000 | 36,000 | 2 | 72,000 | |
| 9/1 | 4,000 | 40,000 | 4 | 160,000 | |
| Total | 12 | $436,000 |
Average capital $436,000 / 12 months $36,333
Average capital for W
| Date | Debit | Credit | Balance | Months maintained | Months x balance |
| 1/1 | $50,000 | 3 | $150,000 | ||
| 4/1 | $7,000 | 57,000 | 2 | 114,000 | |
| 6/1 | 3,000 | 60,000 | 2 | 120,000 | |
| 8/1 | 12,000 | 48,000 | 5 | 240,000 | |
| Total | 12 | $624,000 |
Average capital $624,000 / 12 months $52,000
Income distribution s
| E | N | W | Total | |
| Profit sharing ratio | 1 | 1 | 1 | 3 |
| Average capital | $31,222 | $36,333 | $52,000 | |
| Net income | $68,080 | |||
| Interest on capital 10% | 3,133 | 3,633 | 5,200 | (11,966) |
| Salaries | 24,000 | 21,000 | 25,000 | (70,000) |
| Bonus | 4,280 | (4,280) | ||
| Residual deficit | ($18,166) | |||
| Allocation of deficit 1:1:1 | (6,055) | (6,055) | (6,056) | 18,166 |
| Total | $21,078 | $22,858 | $24,144 | 0 |
Bonus = .10(net income − bonus − N’s salary)
B = .10(68,080 − B - $21,000)
B = .10(47.080 − B)
10B = $47,080 − B
11B = $47,080
B = $47,080 / 11 = $4,280
To determine
Allocation of profit and loss to partners: Allocation of profit and loss to partners will be in accordance with partnership agreement. If the entity does not have formal partnership agreement, section 401 of the UPA 1997 indicates that profit and losses are distributed equally among partners. Profit distributions are not included in the partnership’s income statement, but recorded directly into partner’s capital accounts, not treated as expense items.
The preparation of income distribution schedule using the given information.
Expert Solution
Answer to Problem 15.12P
E is entitled to get $32,180, N $29,158 and W will get $31,602 of total profit.
Explanation of Solution
| E | N | W | Total | |
| Profit ratio | 8 | 7 | 5 | 20 |
| Beginning capital | $30,000 | $40,000 | $50,000 | |
| Net income | $92,940 | |||
| Interest on beginning capital 10% | 3,000 | 4,000 | 5,000 | (12,000) |
| Salaries | 21,000 | 18,000 | 15,000 | (54,000) |
| Bonus | 6,490 | (6,490) | ||
| Residual income | $20,450 | |||
| Allocation of income 8:7:5 | 8,180 | 7,158 | 5,112 | (20,450) |
| Total | $32,180 | $29,158 | $31,602 | 0 |
Bonus = .20(Net income − Bonus − Salaries)
B = .20(92,940 − B - $54,000)
5B = .20($38,940 − B
6B = $38,940
B = $38,940 / 6 = $6,490
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Chapter 15 Solutions
Loose Leaf For Advanced Financial Accounting
Ch. 15 - Prob. 15.1QCh. 15 - Prob. 15.2QCh. 15 - Prob. 15.3QCh. 15 - Prob. 15.4QCh. 15 - Under what circumstances would a partner’s capital...Ch. 15 - Prob. 15.6QCh. 15 - Prob. 15.7QCh. 15 - Prob. 15.8QCh. 15 - Prob. 15.9QCh. 15 - Prob. 15.10Q
Ch. 15 - Prob. 15.11QCh. 15 - Prob. 15.12QCh. 15 - Prob. 15.13QCh. 15 - Prob. 15.14QCh. 15 - Prob. 15.15AQCh. 15 - Prob. 15.16BQCh. 15 - Prob. 15.1CCh. 15 - Prob. 15.2CCh. 15 - Prob. 15.3CCh. 15 - Prob. 15.1.1ECh. 15 - Prob. 15.1.2ECh. 15 - Prob. 15.1.3ECh. 15 - Prob. 15.1.4ECh. 15 - Multiple-Choice on Initial Investment [AICPA...Ch. 15 - Prob. 15.2ECh. 15 - Prob. 15.3ECh. 15 - Prob. 15.4ECh. 15 - Prob. 15.5ECh. 15 - Prob. 15.6ECh. 15 - Prob. 15.7ECh. 15 - Prob. 15.8.1ECh. 15 - Prob. 15.8.2ECh. 15 - Prob. 15.8.3ECh. 15 - Prob. 15.8.4ECh. 15 - Prob. 15.8.5ECh. 15 - Prob. 15.8.6ECh. 15 - Prob. 15.8.7ECh. 15 - Prob. 15.8.8ECh. 15 - Prob. 15.9ECh. 15 - Retirement of a Partner On January 1, 20X1, Eddy...Ch. 15 - Prob. 15.11PCh. 15 - Prob. 15.12PCh. 15 - Prob. 15.13PCh. 15 - Prob. 15.14PCh. 15 - Withdrawal of a Partner under Various Alternatives...Ch. 15 - Prob. 15.16.1PCh. 15 - Prob. 15.16.2PCh. 15 - Prob. 15.16.3PCh. 15 - Prob. 15.16.4PCh. 15 - Prob. 15.16.5PCh. 15 - Prob. 15.16.6PCh. 15 - Prob. 15.16.7PCh. 15 - Prob. 15.16.8PCh. 15 - Prob. 15.16.9PCh. 15 - Prob. 15.17PCh. 15 - Prob. 15.18PCh. 15 - Initial investments and Tax Bases [AICPA Adapted]...
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