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    This document contains several partnership problems involving the allocation of income, expenses, bonuses and capital accounts between partners: 1. The first problem shows a basic income statement for a partnership with sales of $700,000, costs of $400,000, operating expenses of $100,000, interest paid of $20,000 resulting in net income of $180,000. 2. The second problem allocates net income of $60,000 between partners, with partner C receiving 20% of net income or $12,000. 3. The remaining problems allocate salaries, bonuses, interest, profit shares, and ending capital amounts between partners Rizz, Izza, and Lyn under different scenarios

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    This document contains several partnership problems involving the allocation of income, expenses, bonuses and capital accounts between partners: 1. The first problem shows a basic income statement for a partnership with sales of $700,000, costs of $400,000, operating expenses of $100,000, interest paid of $20,000 resulting in net income of $180,000. 2. The second problem allocates net income of $60,000 between partners, with partner C receiving 20% of net income or $12,000. 3. The remaining problems allocate salaries, bonuses, interest, profit shares, and ending capital amounts between partners Rizz, Izza, and Lyn under different scenarios

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    © All Rights Reserved
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    2 views3 pages

    Partnership Ops Solution Manual

    Uploaded by

    cali cd
    This document contains several partnership problems involving the allocation of income, expenses, bonuses and capital accounts between partners: 1. The first problem shows a basic income statement for a partnership with sales of $700,000, costs of $400,000, operating expenses of $100,000, interest paid of $20,000 resulting in net income of $180,000. 2. The second problem allocates net income of $60,000 between partners, with partner C receiving 20% of net income or $12,000. 3. The remaining problems allocate salaries, bonuses, interest, profit shares, and ending capital amounts between partners Rizz, Izza, and Lyn under different scenarios

    Copyright:

    © All Rights Reserved
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    of 3

    Partnership Operations

    Solution Manual

    Discussion Problems:

    1 Sales 700,000.00
    Less: Cost of goods sold - 400,000.00
    Gross Profit 300,000.00
    Less: Operating expenses - 100,000.00
    Operating profit 200,000.00
    Less: Interst paid to bank - 20,000.00
    Net Income 180,000.00

    Salaries, like interest on capital investments, are viewed as a means of allocating income rather
    than as an expense. The drawing account is a temporary account and is periodically closed to the
    partner's capital account, and has nothing to do with the computation of net income

    2 Net Income 60,000.00


    C Income Ratio 0.20
    Share of C in Net Income 12,000.00

    3a Rizz 25% Izza 40% Lyn 35% Total


    Salaries 360,000.00 600,000.00 540,000.00 1,500,000.00
    Bonus 135,000.00 - - 135,000.00
    Interest 18,360.00 22,680.00 11,520.00 52,560.00
    Balance 286,860.00 458,976.00 401,604.00 1,147,440.00
    Profit Share 800,220.00 1,081,656.00 953,124.00 2,835,000.00

    Interest Rizz Izza Lyn


    Ending Capital 153,000.00 189,000.00 96,000.00
    x Interest 12.00% 12.00% 12.00%
    Interest Allowance 18,360.00 22,680.00 11,520.00

    Bonus of Rizz
    B = 5% (NI - B)
    B = 5% (2,835,000 - B)
    B = 141,750 - 5%B
    105%B = 141750
    B = 135,000

    3b Rizz Izza Lyn Total


    Interest 10% 16,950.00 16,725.00 9,375.00 43,050.00
    Salaries 480,000.00 630,000.00 510,000.00 1,620,000.00
    Bonus 84,000.00 84,000.00
    Balance - 154,900.00 - 232,350.00 - 309,800.00 - 697,050.00
    Profit Share 1,050,000.00

    Interest Rizz Izza Lyn


    Weighted Ave Cap 169,500.00 167,250.00 93,750.00
    Interest 10.00% 10.00% 10.00%
    Interest Allowance 16,950.00 16,725.00 9,375.00

    Average Capital - Rizz


    Jan-01 135,000.00 4/12 45,000.00
    May-01 207,000.00 5/12 86,250.00
    Oct-01 153,000.00 3/12 38,250.00
    169,500.00
    Average Capital - Izza
    Jan-01 180,000.00 2/12 30,000.00
    Mar-01 144,000.00 3/12 36,000.00
    Jun-01 171,000.00 6/12 85,500.00
    Dec-01 189,000.00 1/12 15,750.00
    167,250.00
    Average Capital - Lyn
    Jan-01 75,000.00 3/12 18,750.00
    Apr-01 105,000.00 4/12 35,000.00
    Aug-01 96,000.00 5/12 40,000.00
    93,750.00
    Bonus
    B = 25% (1,050,000 - B - 630,000)
    B = 25% (420,000 - B)
    B = 105,000 - 25%B
    125%B = 105,000
    B = 84,000

    3c Rizz Izza Lyn Total


    Bonus
    Salaries 600,000.00 540,000.00 750,000.00 1,890,000.00
    Interest 1,950.00 7,350.00 - 9,300.00
    Balance - 55,142.00 - 73,523.00 - 30,635.00 - 159,300.00
    Profit Share 546,808.00 473,827.00 719,365.00 1,740,000.00

    Interest Rizz Izza Lyn


    Ending Capital 153,000.00 189,000.00 96,000.00
    140,000.00 140,000.00 140,000.00
    Excess 13,000.00 49,000.00 - 44,000.00
    Interest 15.00% 15.00% 15.00%
    1,950.00 7,350.00

    Bonus
    B = 20% (NI - B - S)
    B = 20% (1,740,000 - B - 1,890,000)
    B = 20% (-150,000 - B)
    B = -30,0000 - 20%B
    120%B = -30,000
    B = -25,000

    3d Rizz Izza Lyn Total


    Salaries 384,000.00 480,000.00 504,000.00 1,368,000.00
    Bonus
    Interest 4,500.00 2,250.00 5,250.00 12,000.00
    Balance ratio - 1,065,000.00 - 710,000.00 - 355,000.00 - 2,130,000.00
    Profit Share - 676,500.00 - 227,750.00 154,250.00 - 750,000.00

    Interest Rizz Izza Lyn


    Ending Capital 153,000.00 189,000.00 96,000.00
    Beginning Capital 135,000.00 180,000.00 75,000.00
    Excess 18,000.00 9,000.00 21,000.00
    Interest 25.00% 25.00% 25.00%
    Interest allowance 4,500.00 2,250.00 5,250.00

    No bonus since there is a Net loss

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