Concept explainers
Allocation of
The preparation of income distribution when weighted average capital balance, and bonus is calculated after deducting the bonus.
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 when interest is based on ending capital after deducting salaries.
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.
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Advanced Financial Accounting
- 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.arrow_forwardPearson andMurphy have partner capital balances, at book value, of $45,000 and $65,000 as of December 31. Pearson is allocated 60% of profits or losses, and Murphy is allocated the balance. The partners believe that tangible net assets have a market value in excess of book value in the amount of $30,000 net. The $30,000 is allocated as follows: Book Value Market Value Accounts receivable . . . . . . . . . $120,000 $102,000 Inventory . . . . . . . . . . . . . . . . . . 200,000 258,000 Warranty obligations . . . . . . . . 20,000 30,000 They are considering admitting Warner to the partnership in exchange for total consideration of $84,000 cash. In exchange for the consideration, Warner will receive a 30% interest in capital and a 35% interest in profits. 1. Prepare the entries associated with the admission of Warner to the partnership under the goodwill method. 2. If the goodwill…arrow_forwardJpea, Jic, and Jfenix formed a partnership and named it ESBIEYEY. At the end of the year, the partnership earned a profit of P 1,000,000. The capital balances are P250,000, P280,000, and P270,000 for Jpea, Jic, and Jfenix, respectively. The partners agreed to distribute the profit as follows: Interest to ending capital of 10% will be given Jpea and Jic will be given a salary amounting to P 150,000 each Jfenix will be given a bonus of 10% of net income after interest, salary and bonus Remaining profit is to be distributed equally How much is the bonus given to Jfenix? A. P 67,000 B. P 62,000 C. P 56,364 D. P 60,909 How much is Jpea’s share in net income? A. P 365,879 B. P 360,879 C. P 362,879 D. P 364,879 How much is Jic’s share in net income? A. P 360,879 B. P 362,879 C. P 364,879 D. P 365,879arrow_forward
- Ebanks, Brown, and Thomas are partners. They carry on a business jointly as EBT surveyors and share profits and losses in the ratio 25:45: 30. The trading account profit as at 31 December 2021 was $6,500,000 after charging a nominal tax of $750,000. Notes: The partners receive interest on their capital accounts at 9.5 % on the balance of their partner capital at the end of the budget year. The interest on the capital account was not included in the income statement. Include in the income statement is $80,000 salary per month for each partner. The partnership paid motor vehicle expenses for vehicles owned by the partners as follows: Ebanks -$ 50,000 Brown - $80,000 Thomas - $130,000 The partners did not use the vehicles for the partnership business. Profit on disposal was $180,000. Depreciation on plant and machinery for the year was $900,000. In recognition of the new IFRS 9 standard, a provision for bad…arrow_forwardThe partnership contract of Robert Florence and Karen Partnership provided for the sharing of net income and losses as follows:A) Salaries of $30,000 to Robert, $28,000 to Florence and $26,000 to Karen.B) Interest of 10% a year on average capital balances.C) Any residual income or loss in the ration of 3:5:2 to Robert, Florence, and Karen respectively. The net income for the year is $140,000. The average capital balances were $60,000 for Robert, $40,000 for Florence and $100,000 for Karen. Prepare a journal entry to distribute the profit. Show details of the calculation in the space provided.arrow_forwardThe AA Enterprise realized a profit of P240,000 for the year. Changes in the Capital Accounts of the partners are as follows: Prepare the journal entries and computation to record the division of profit using the following assumptions: 1.Profit is divided equally 2.Profit is divided in the ratio of 3:2 3.Profit is divided 45% to Adam and 55% to Andy 4. Profit is divided according to the beginning capital ratio 5. Profit is divided according to the average capital ratio 6.Each partner is allowed 10% interest on ending capital and remaining is divided equally 7.Andy, the managing partner, is allowed a salary of P150,000 and the remainder divided in 4:1 ratio 8.Andy, the managing partner, is allowed a bonus of 20% of profit: 1.Bonus is before bonus and income tax; remainder equally divided 2.Bonus is after deduction of bonus but before income tax, remainder equally a.Bonus is before deduction of bonus but after income tax; remainder equally b.Bonus is after bonus and income tax,…arrow_forward
- Dylan Howell and Demond Nickles have decided to form a partnership. They have agreed that Howell is to invest $50,000 and that Nickles is to invest $75,000. Howell is to devote full time to the business, and Nickles is to devote one-half time. The following plans for the division of income are being considered:a. Equal divisionb. In the ratio of original investmentsc. In the ratio of time devoted to the businessd. Interest of 10% on original investments and the remainder in the ratio of 3:2e. Interest of 10% on original investments, salary allowances of $38,000 to Howell and $19,000 to Nickles, and the remainder equally.f. Plan (e), except that Howell is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances Instructions For each plan, determine the division of the net income under each of the following assumptions:(1) net income of $420,000 and (2) net income of $150,000. Present the data in tabular form, using the following…arrow_forwardJenkins, Willis, and Trent invested $252,000, $441,000, and $567,000, respectively, in a partnership. During its first year, the firm recorded profit of $639,000. d- The partners agreed to share profit by providing annual salary allowances of $123,000 to Jenkins, $133,000 to Willis, and $68,000 to Trent; allowing 10% interest on the partners’ beginning investments; and sharing the remainder equally. Record to close income summary account.arrow_forwardRodgers and Winter had capital balances of $60,000 and $90,000, respectively, at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $30,000, respectively; an allowance of interest at 12% on the capital balances at the beginning of the year; and the remaining net income divided equally. Net income for the current year was $110,000. a. Present the Division of net income section of the income statement for the current year. Net income $110,000 Rodgers Winter Total Division of net income: Salary allowance $fill in the blank 1 $fill in the blank 2 $fill in the blank 3 Interest allowance fill in the blank 4 fill in the blank 5 fill in the blank 6 Total fill in the blank 7 fill in the blank 8 fill in the blank 9 fill in the blank 11 fill in the blank 12 fill in the blank 13 Net income $fill in the blank 14 $fill in the…arrow_forward
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