The ledger of Dan Reeves and Ron Strange, Attorneys-at-Law, contains the following accounts and balances after adjustments have been recorded on December 31, 2006:

Cash ....................$ 24,500

Accounts Receivable ............. 40,500

Supplies .................. 2,400

Land .................... 50,000

Building .................. 150,000

Accumulated Depreciation—Building ...... 77,500

Office Equipment .............. 40,000

Accumulated Depreciation—Office Equipment .. 22,400

Accounts Payable .............. 1,000

Salaries Payable ................. 1,500

Dan Reeves, Capital ............. 75,000

Dan Reeves, Drawing .............. 50,000

Ron Strange, Capital ............. 55,000

Ron Strange, Drawing .............. 60,000

Professional Fees ............... 316,750

Salary Expense ................ 84,500

Depreciation Expense—Building ........ 10,500

Property Tax Expense .............. 10,000

Heating and Lighting Expense ......... 9,900

Supplies Expense ............... 5,750

Depreciation Expense—Office Equipment .... 5,000

Miscellaneous Expense ............ 6,100

The balance in Strange’s capital account includes an additional investment of $5,000 made on April 5, 2006.

Instructions

1. Prepare an income statement for the current fiscal year, indicating the division of net income. The articles of partnership provide for salary allowances of $25,000 to Reeves and $35,000 to Strange, 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 partner’s equity for 2006.

3. Prepare a balance sheet as of the end of 2006.