On October 1, 2016, Abdullah, Bookman, and Clay formed the A, B, and C partnership. Abdullah contributed $21,000; Bookman, $35,000; and Clay, $44,000. Abdullah will manage the store; Bookman will work in the store three-quarters of the time; and Clay will not work in the business.
Requirements
1. Compute the partners' shares of profits and losses under each of the following plans:
a. Net loss for the year ended September 30, 2017, is $62,000, and the partnership agreement allocates 45% of profits to Abdullah, 35% to Bookman, and 20% to Clay. The agreement does not discuss sharing of losses.
b. Net income for the year ended September 30, 2017, is $80,000. The first $25,000 is allocated on the basis of relative partner capital balances. The next $40,000 is based on services, with $30,000 going to Abdullah and $10,000 going to Bookman. Any remainder is shared equally.
2. Using plan b, prepare the partnership statement of partners' equity. Assume Abdullah, Bookman, and Clay each withdrew $5,000 from the partnership during the year.