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PARTNERSHIP OPERATIONS
a. The interest allocation to the partners, based on weigthed average invested capital.
a. Partnerships employ the same revenue and expense recognition criteria as corporations
b. Interest allocated to partners is not deducted as and expense in measuring the partnership
income
3. Which of the following is correct with regard to drawing accounts that may be used by a
partnership?
a. Drawing accounts are closed to the partners' capital accounts at the end of the accouning
period
b. Drawing accounts establish the amount that may be taken from the partnership by a partner
in a given time period.
1. Agreement
Losses
1. Agreement
PROBLEMS
1. CJ, a partner in the FINEST Partnership, has a 30% participation in partnership profits and
losses. CJ's Capital Account has a net decrease of 1,200,000 during the calendar year. During
20x5, CJ withdrew 2,600,000(charged against his capital account) and contributed property
valued at 500,000 to the partnership. What was the net income of the FINEST Partnership for
year 20x5?
2. Kent, Philip, and Lari are partners in an accounting firm. Their capital account balances at
year-end were: Kent, 90,000 ; Philip, 110,000; Lari 50,000. They share profits and losses in a
4:4:2 ratio, after the following special terms:
(1) Lari is to receive a bonus of 10% of the net income after bonus
(2) Interest of 10% shall be paid on that portion of a partner's capital in excess of 100,000
(3) Salaries of 10,000 and 12,000 shall be paid to partners Kent and Lari, respectively.
Assuming an Income BEFORE tax of 44,000 for the year, the total profit share of Lari would be:
3. Jae and Baldo share profits and losses equally. Jae and Baldo receive a salary of 20,000 and
30,000 respectively, and both partners receive 10% interest on their average capital balances.
Jae Baldo
Permanent withdrawals
July 1 (12,000)
June 2 (15,000)
Additional Investments
August 1 40,000
November 1 50,000
What is the weighted average capital for Jae and Baldo respectively for 20x5?
4. Rob, Bran, Sansa, and Arya own a publishing company that they operate as a partnership.
The partnership agrrement includes the following:
- Rob receives a salary of 20,000 and bonus of 3% of inxome after all bonuses
- Bran receives a salary of 10,000 and a bonus of 2% od income after all bonuse
- All partners are to receive 10% interest on their average capital balances
Rob 50,000
Bran 45,000
Sansa 20,000
Arya 47,000
Any remaining profits are to be divided equally among the partners. Determine how a profit of
105,000 would be allocated ampng the partners.