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Olsen and Katch organized the OK Partnership on 1/1/01. The following entries were made into their capital accounts during 01: Olsen Debits Credits 20,000 5,000 5,000 10/1 Katch 40,000 / 10,000 9/1 10,000 10,000 The partnership agreement called for the following in the allocation of partnership profits and losses Salaries of S48,000 and S36,000 would be allocated to Olsen and Katch, respectively Interest of 8% on average capital balances will be allocated Katch will receive a bonus of 10% on all partnership billings in excess of $300,000 Any remaining profits/losses will be allocated 60/40 to Olsen and Katch, respectively. Required (account for each situation independently): a. Determine the distribution of partnership net income. Assume the following priority of allocation: interest, bonus, salaries, then remaining assuming partnership income of $85,000; partnership blings amounted to $400,000 b. Determine the distribution of partnership net income of $165,000 on billings of $400,000. No specific priority is given to any of the allocation criteria.

Please show all work and explain how you arrived at your answer. Thank you.

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olsen Remainder $ 85,000 $ 2,000 $ 2,400 $ 4,400 80,600 $ 10,000 10,000 70,600 Katch Total Available interest Bonus Salaries Subtotals $ 40,343 $ 30,257 $ 42,343 $ 42,657 70,600 $ 85,000 Weighted Aver olsen: Capital Balance #No of months Gross Capital 20000 25000 4/1 to 10/1 10/1 to 12/31 150000 Total Average(per month) 25000 Katch: Capital Balance #No of months Gross Capital 30000 180000 20000 11/1 to 12/31 60000 Total Average(per month) 360000 $70,600 is not sufficient to cover entire salary allocation. It is split between Oslen and Katch based on proportionate salaries: Olsen 48000/84000 70600 40,343 Katch36000/84000 70600 30,257b. Olsen Katch Total Salaries Bonus Interest Subtotals Remainder Final Profit 36000 84000 2000 4400 98400 66600 165000 NNI 48400 26640 75040 9960 26 89960 *See part a solution for weighted average capital calculation $25,000 8/100 $35,000 8/100

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