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.

Answer 1

Case #1 :
Allocation of Income to Partners
Particulars	Total	Otero	Villas
Income	1,75,000
Salary	-50,000	25,000	25,000
Interest on capital	-7,500	5,000	2,500
Remaining income as per ratio	-1,17,500	70,500	47,000
	Total	1,00,500	74,500
Partner T-Accounts
Otero Capital Account
Debit		Credit
Particulars	Amount	Particulars	Amount
Drawings by partner	10,000	Opening Balance	50,000
		Salary	25,000
		Interest on capital	5,000
Closing Balance	1,40,500	Remaining profit share	70,500
Total	1,50,500	Total	1,50,500
Villas Capital Account
Debit		Credit
Particulars	Amount	Particulars	Amount
		Opening Balance	25,000
		Salary	25,000
		Interest on capital	2,500
Closing Balance	99,500	Remaining profit share	47,000
Total	99,500	Total	99,500
Case #2 :
Allocation of Income to Partners
Particulars	Total	Otero	Villas
Income	95,000
Salary	-20,000		20,000
Productivity Bonus	-2,250		2,250
Interest on Capital	-31,000	15,000	16,000
Remaining income as per ratio	-41,750	20,875	20,875
	Total	35,875	59,125
(Assumed that productivity bonus is on amount of bonds and not on the Income)
Partner T-Accounts
Otero Capital Account
Debit		Credit
Particulars	Amount	Particulars	Amount
		Opening Balance	75,000
		Salary	-
		Interest on capital	15,000
Closing Balance	1,10,875	Remaining profit share	20,875
Total	1,10,875	Total	1,10,875
Villas Capital Account
Debit		Credit
Particulars	Amount	Particulars	Amount
		Opening Balance	80,000
		Salary	20,000
		Productivity Bonus	2,250
		Interest on capital	16,000
Closing Balance	1,36,875	Remaining profit share	20,875
Total	1,36,875	Total	1,39,125