Profit allocation involving interest on capital balances. Rivera, Sampson, and Elliott are partners in a commercial...
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Profit allocation involving interest on capital balances. Rivera, Sampson, and Elliott are partners in a commercial plumbing business. Rivera and Sampson have also started another contracting company and have cash flow needs which require periodic distributions from the partnership. In order to deal fairly with the level of partnership withdrawals, the partnership agreement calls for profit sharing as follows: Component Rivera Sampson Elliott Salaries... $80,000 $80,000 $100,000 Bonus on income after the bonus. 0% 0% 10% Interest on "average net capital" Percentage of remaining profits. . 10% 10% 10% 30% 30% 40% "Average net capitaľ' is determined by netting the partners drawing accounts against their capital accounts and weighting the net amounts for the appropriate portion of the year. On March 31 and September 30, $40,000 is allocated to each partner's capital account in anticipa- tion of the annual actual amount of profit. Activity in the drawing and capital accounts is as fol- lows for the current calendar year: Drawing Account Rivera Sampson Elliott Beginning balance January 1 March 31 draws . June 30 draws... September 30 draws.. Capital Account Beginning balance January 1. March 31 anticpated profit allocation. March 31 capital investment... September 30 anticpated profit allocation September 30 loan conversion . 24 $ 30,000 40,000 - 10,000 25,000 30,000 20,000 50,000 20,000 40,000 40,000 50,000 40,000 70,000 40,000 40,000 40,000 40,000 15,000 40,000 Sampson had loaned the partnership money in the past, and the transaction was properly classified as a loan payable on the statements of the partnership. On September 30, the loan and accrued interest totaling $15,000 were converted from a loan payable to a capital investment in the partnership. Determine how the current year profit of S330,000 is to be allocated among the partners. Profit allocation involving interest on capital balances. Rivera, Sampson, and Elliott are partners in a commercial plumbing business. Rivera and Sampson have also started another contracting company and have cash flow needs which require periodic distributions from the partnership. In order to deal fairly with the level of partnership withdrawals, the partnership agreement calls for profit sharing as follows: Component Rivera Sampson Elliott Salaries... $80,000 $80,000 $100,000 Bonus on income after the bonus. 0% 0% 10% Interest on "average net capital" Percentage of remaining profits. . 10% 10% 10% 30% 30% 40% "Average net capitaľ' is determined by netting the partners drawing accounts against their capital accounts and weighting the net amounts for the appropriate portion of the year. On March 31 and September 30, $40,000 is allocated to each partner's capital account in anticipa- tion of the annual actual amount of profit. Activity in the drawing and capital accounts is as fol- lows for the current calendar year: Drawing Account Rivera Sampson Elliott Beginning balance January 1 March 31 draws . June 30 draws... September 30 draws.. Capital Account Beginning balance January 1. March 31 anticpated profit allocation. March 31 capital investment... September 30 anticpated profit allocation September 30 loan conversion . 24 $ 30,000 40,000 - 10,000 25,000 30,000 20,000 50,000 20,000 40,000 40,000 50,000 40,000 70,000 40,000 40,000 40,000 40,000 15,000 40,000 Sampson had loaned the partnership money in the past, and the transaction was properly classified as a loan payable on the statements of the partnership. On September 30, the loan and accrued interest totaling $15,000 were converted from a loan payable to a capital investment in the partnership. Determine how the current year profit of S330,000 is to be allocated among the partners.
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Rivera Sampson Elliot Total Profit and Loss Percentage 30 30 40 Salary 80000 80000 100000 260000 Bon... View the full answer
Related Book For
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Posted Date:
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