Fall 2017 Final Exam Advanced Accounting 2 Preblem Kirk and Picard established a

Question

Fall 2017 Final Exam Advanced Accounting 2 Preblem Kirk and Picard established a partnership on January 1, 2017. Kirk invested cash of $100,000 and Picard invested $30,000 in cash and equipment with a book value of $40,000 and fair value of S50,000. Like any other business, the partnership will use FMV for assets that owners invest in the business. For both partners, the beginning capital balance was to equal the initial investment. Kirk and Picard agreed to the following procedure for sharing profits and losses -12% interest on the yearly beginning capital balance -$10 per hour of work that can be billed to the partnership's clients - the remainder divided in a 3:2 ratio The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month, which is accounted as direct reduction of that partner's capital balance. For 2017, the partnership's income was $70,000. Kirk had 1,000 billable hours, and Picard worked 1,400 billable hours. In 2018, the partnership's income was $24,000, and Kirk and Picard worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2017 and 2018. Required: Prepare schedules, in good form, for the partnership allocating net income to each partner for 2017 and 2018. Round to the nearest dollar

Explanation / Answer

Distribution 2017: Particulars Profit Kirk Picard Opening capital balances               90,000               90,000 Income 2017          70,000 Less: Interest on capital        -21,600               10,800               10,800 [90000*12%] [90000*12%] Less: Salary        -24,000               10,000               14,000 [1000*10] [1400*10] Balance          24,400           1,10,800           1,14,800 Less: Balance distribution (3:2)        -24,400               14,640                 9,760 Balance                   -             1,25,440           1,24,560 Less: drawings               12,000               12,000 [1000*12] [1000*12] Capital balance           1,13,440           1,12,560 Distribution 2018: Particulars Profit Kirk Picard Opening capital balances           1,13,440           1,12,560 Income 2018          24,000 Less: Interest on capital        -27,120               13,613               13,507 [113440*12%] [112560*12%] Less: Salary        -20,000                 8,000               12,000 [800*10] [1200*10] Balance        -23,120           1,35,053           1,38,067 Less: Balance distribution (3:2)          23,120             -13,872                -9,248 Balances                   -             1,21,181           1,28,819 Less: drawings               12,000               12,000 [1000*12] [1000*12] Capital balance           1,09,181           1,16,819

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