Question

1. Dividing Partnership Net Income

Required:

Steve Prince and Chelsy Dane formed a partnership, dividing income as follows:

1. Annual salary allowance to Dane of $97,350.
2. Interest of 5% on each partner's capital balance on January 1.
3. Any remaining net income divided to Prince and Dane, 1:2.

Prince and Dane had $93,000 and $75,000, respectively, in their January 1 capital balances. Net income for the year was $177,000. How much is distributed to Prince and Dane?

Note: Compute partnership share.

Prince:

Dane:

2. Revaluing and Contributing Assets to a Partnership

Demarco Lee invested $32,000 in the Camden & Sayler partnership for ownership equity of $32,000. Prior to the investment, equipment was revalued to a market value of $339,000 from a book value of $288,000. Kevin Camden and Chloe Sayler share net income in a 1:3 ratio.

Required:

a. Provide the journal entry for the revaluation of equipment.

For a compound transaction, if an amount box does not require an entry, leave it blank.

b. Provide the journal entry to admit Lee.

3. Liquidating Partnerships

Prior to liquidating their partnership, Ellis and Brooks had capital accounts of $69,000 and $115,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $218,000. The partnership had $6,000 of liabilities. Ellis and Brooks share income and losses equally.

Determine the amount received by Ellis as a final distribution from liquidation of the partnership.

Answer 1

Answer 1

Net Income for the year	$177,000
(-) Salary Allowance to Dane	($97,350)
(-) Interest on Capital Prince = $93,000 × 5% = $4,650 Dane = $75,000 × 5% =$3,750	($4,650) ($3,750)
= Income to be distributed to Prince and Dane in ratio of 1:2	$71,250

Partnership Share

Prince = Interest on Capital + Share of remaining income to be distributed

= $4,650 + 71250 × 1/3

= $4,650 + $23,750

= $28,400.

Dane = Salary Allowance + Interest on Capital + Share of income to be distributed to Dane

= $97,350 + $3,750 + $71250 × 2/3

= $97,350 + $3,750 + $47,500

=$148,600.

So Prince's Partnership Share = $28,400

Dane's Partnership Share = $148,600.