Question

Instructions: Prepare the allocation of income by partners in each case. Prepare the breakdown of income in T Accounts of the partners

Susan Otero and Kendra Villas opened an advertising business as a partnership. They have the following agreements. Each case is independent of the other. You must prepare T-accounts for the capital of each partner for each case. 60 points. (15 pts each case)

Case #1 Income of $175,000
a) Salaries of $25,000 each
b) They receive 10% interest on the invested capital. Otero capital is $50,000 and Villas
capital is $25,000.
c) Remaining 60% for Otero and 40% for Villas.
d) For T-account, Otero withdrew $10,000 for personal use

Case #2 Income of $95,000
a) $15,000 Productivity Bond for Villas
b) Salaries for Villas of $20,000
c) Otero receives a 15% income productivity bonus
d) 20% interest on the invested capital. Otero capital is $75,000 and Villas capital is
$80,000.
e) Remaining income in equal parts.

Case #3 Income of $40,000
a) Salaries 15,000 each partner
b) $20,000 productivity bonus for Otero
c) They receive 15% interest on the capital invested. Otero capital is $80,000 and Villas
capital is $80,000
d) Remaining income in 2:1
e) For T-account, Villas withdrew $5,000 for personal use

Case #4 Income of $200,000
a) Salaries of $25,000 for Otero and $15,000 for Villas
b) 5,000 Villa Productivity Bonus
c) 20% productivity bonus for Otero
d) 10% interest on the invested capital. Otero capital $60,000 and Villas capital $75,000.
e) Remaining income in 45% for Otero and 55% for Villas

Answer 1

Case #1 Income of $175,000 a) Salaries of $25,000 each b) They receive 10% interest on the invested capital. Otero capital is $50,000 and Villas capital is $25,000 c) Remaining 60% for Otero and 40% for Villas d) For T-account, Otero withdrew $10,000 for personal use Particulars Expenses Particulars Income Salaries (25000*2) 50,000 Income 1,75,000 Interest on Capital Otero Capital (10% on Capital - 50000) L 5,000 Villas Capital (10% on Capital - 25000) 2,500 Profit 1,17,500 1,75,000 Total 1,75,000 Otero Villas 50,000 25,000 5,000 25,000 25,000 2,500 Total 75,000 50,000 7,500 Particulars Capital Salaries Interest on Capital Profit Share 60% - Otero on Profit - 117500 40% - Villas on Profit - 117500 Withdrawal 70,500 47,000 70,500 47,000 -10,000 2,40,000 -10,000 1,40,500 Total 99,500 Drawings - Otero - $ 10000

Case 2 Case #2 Income of $95.000 a) $15,000 Productivity Bond for Vilas b) Salaries for Villas of $20,000 c) Otero receives a 15% income productivity bonus d) 20% interest on the invested capital. Otero capital is $75,000 and Villas capital is $80,000 e) Remaining income in equal parts Particulars Expenses Particulars Income Salaries - Villas 20,000 Income 95,000 Productivity Bond (15 % on 95000) 14,250 Interest on Capital Otero Capital (20% on Capital - 75000) | 15,000 Villas Capital (20% on Capital - 80000) 16,000 29.750 Profit Total 95,000 95,000 Otero 75,000 Particulars Capital Productivity Bond Salaries - Villas Interest on Capital Profit Share 50% - Otero on Profit - 29750 50% - Villas on Profit - 29750 Villas 80,000 14,250 20,000 16,000 Total 1,55,000 14,250 20,000 31,000 15,000 14,875 14,875 14,875 14,875 Total 1,04,875 1,45,125 2,50,000

Case 3 Case #3 Income of $40,000 a) Salaries 15,000 each partner b) $20,000 productivity bonus for Otero c) They receive 15% interest on the capital invested Otero capital is $80,000 and Villas capital is $80,000 d) Remaining income in 2:1 e) For T-account. Villas withdrew $5,000 for personal use Particulars Expenses Particulars Income Salaries - Villas 15,000 Income 40,000 Salaries - Otero 15,000 Productivity Bonus 20,000 Interest on Capital Otero Capital (15% on Capital - 80000) Villas Capital (15% on Capital - 80000) | 12,000 12,000 Loss 34,000 74,000 Total 74,000 Particulars Capital Salaries Productivity Bonus Interest on Capital Profit Share 2/3 of Loss - 34000 1/3 of Loss - 34000 Withdrawal Otero 80,000 15,000 20,000 12,000 Villas 80,000 15,000 Total 1,60,000 30,000 20,000 24,000 12,000 -22,667 -11,333 -5,000 90,667 -22,667 -11,333 -5,000 1,95,000 Total 1,04,333 Drawings - $ 5000 - Villas