Question

Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

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 $340,000, $310,000, and $155,000, 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 $9,500 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:

2016 2017 2018
Gray 1,840 3,100 2,010
Stone 1,570 1,800 1,750
Lawson 2,600 1,510 1,440
Monet 0 1,320 1,710

The partnership reports net income for 2016 through 2018 as follows:

2016 $ 90,000
2017 (33,400)
2018 181,000

Each partner withdraws the maximum allowable amount each year.

  1. Determine the allocation of income for each of these three years.

  2. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2018.

0 0
Add a comment Improve this question Transcribed image text
Know the answer?
Add Answer to:
Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

    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 $420,000, $390,000, and $195,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: Personal drawings are allowed annually up to an amount equal...

  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

    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 $290,000, $260,000, and $130,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: Personal drawings are allowed annually up to an amount equal...

  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

    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 $410,000, $340,000, and $170,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: Personal drawings are allowed annually up to an amount equal...

  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016 in San Diego, California,...

    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 $280,000, $250,000, and $125,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: • Personal drawings are allowed annually up to an amount...

  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

    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 $270,000, $240,000, and $120,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: Personal drawings are allowed annually up to an amount equal...

  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

    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 Lawsoń contribute cash and other properties valued at $210,000, $180,000, and $90,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: Personal drawings are allowed annually up to an amount equal...

  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

    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 $280,000, $250,000, and $125,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: Personal drawings are allowed annually up to an amount equal...

  • l Gray, Stone, and Lawson open an accounting practice on January 1, 2016 in San Diego, California, to be operated as...

    l 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 $210,000, $180,000, and $90,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: • Personal drawings are allowed annually up to an...

  • Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California,...

    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 $270,000, $240,000, and $120,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: Personal drawings are allowed annually up to an amount equal...

  • Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $68,000; Johnson...

    Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $68,000; Johnson conveys title to the following properties to the partnership: Book Value $ 24,000 44,000 Fair Value $ 46,000 54,000 Land Building and equipment The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized. According to the articles of partnership written by the partners, profits and losses are allocated based on the following formula: • Boswell receives a...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT