Tutorial 3

Corporate Accounting I
Q5.A withdrawal is a reduction in assets, not a distribution of income. A salary is a
determinate in the allocation of income and is a reward to the partner for the amount
of time devoted to the partnership's operations.
Q6.A bonus may be calculated in several ways. Some of these are: (1) net income
before any income allocations are made; (2) net income after income allocations are
made, but before subtracting the bonus; (3) net income after subtracting the bonus,
but before any other income allocations are made; and (4) net income after all income
allocations are made, including the bonus.

Exercise 15-3
Jones
$4,000
24,000
28,000
16,000
$44,000

Silva Thompson
$2,500
$3,000
0
18,000
2,500
21,000
16,000
16,000
$18,500
$37,000

Total
$9,500
42,000
51,500
48,000
$99,500

Interest on capital
Salary (12 months)
Total
Remainder divided equally
Income allocation

Interest on capital and salary

Excess allocation ($38,300 - $51,500)
Income allocation

$28,000
(4,400)
$23,600

$2,500
(4,400)
$(1,900)

$21,000
(4,400)
$16,600

$51,500
(13,200)
$38,300

Interest on capital and salary

Excess allocation (-$15,100 -$51,500)
Net loss allocation

$28,000
(22,200)
$5,800

$2,500
(22,200)
$(19,700)

$21,000
(22,200)
$(1,200)

$51,500
(66,600)
$(15,100)

Exercise 15-5
Salary
Bonus (schedule 1)
Interest on capital
Total
Remainder
Income allocation

(40%)

Tony
$42,000
0
38,400
80,400
2,851
$83,251

(60%)

Jon
$66,000
7,273
27,200
100,473
4,276
$104,749

Total
$108,000
7,273
65,600
180,873
7,127
$188,000

Schedule 1 - Bonus Calculation

B = .10 (income after salaries - B)
B = .10 [($188,000 - $108,000) - B]
B = .10 ($80,000 - B)
B = $8,000 - .10 B
1.10 B = $8,000
B = $7,273
Proof:
Net Income
Salaries
Bonus
Net income subject to bonus
B = .10 $72,727
B = $7,273

$188,000
(108,000)
(7,273)
$72,727