Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San D
ID: 2394064 • Letter: G
Question
Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $450,000, $420,000, and $210,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:
Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.
Profits and losses are allocated according to the following plan:
1.A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.
2. Interest is credited to the partners’ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).
3. An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed.
4. Any remaining partnership profit or loss is to be divided evenly among all partners.
Because of financial shortfalls encountered in getting the business started, Gray invests an additional $9,200 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet’s entrance into the firm; the general provisions continue to be applicable.
The billable hours for the partners during the first three years of operation follow:
The partnership reports net income for 2016 through 2018 as follows:
2016 $98,000
2017 (44,400)
2018 236,000
Each partner withdraws the maximum allowable amount each year.
A. Determine the allocation of income for each of these three years.
B. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2018.
2016 2017 2018 Gray 2,020 4,200 2,130 Stone 1,680 2,300 1,860 Lawson 3,700 1,620 1,550 Monet 0 1,430 1,820The partnership reports net income for 2016 through 2018 as follows:
2016 $98,000
2017 (44,400)
2018 236,000
Gay Shre, and Lav on ope anaco urt g prade on Jan ry 1 2016. nSan hop Caliv sa to be operated as a parte hpGray andSt ne w serve astesen patron be a ne ono yea sofo e Laenon conibte cash and ofher proper valued at 3450 000, 5420,000, and 5210,000, respecivly An aricles of parnershp agrment is dran up Ithas the tolliowing sipulations nce ?'estate hthebeniess Gray. She aid Profits and lones are allocated acoording to the folowing pan 2 nturest is credited to te parners caphal accounts at he rafe of 12 percent of e average eod regard for urent income or drwing oss or Esalary and itres el in a negative mainder of net income to be distibuted The bilable hos for the patners deing he fent three years of opetion b Phepare in ap on a statement of partners capital tor the year ending Dmber 31 2Explanation / Answer
Req A 2016
Req 2017A
Req 2018A
2016 Gray Stone Lawson Total Billable hours (A) 2,020 1,680 3,700 7,400 Rate per hour (B) 8 8 8 8 Salary allowance (C=A*B) 16,160 13,440 29,600 59,200 average monthly balance (D) 456,133 420,000 210,000 1,086,133 (450000*4/12)+(459200*8/12) Rate of Interest ('E) 12% 12% 12% 12% Interest (F=D*E) 54,736 50,400 25,200 130,336Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.