Question

Problem 4

The partnership agreement of L, M, N and O was formed on January 2, 2020. The original cash investments were as follows:

L, Capital $ 64,000

M, Capital 116,000

N. Capital 150,000

O, Capital 200,000

According to the partnership contract, the partners were to be remunerated as follows:

1. Fixed Amounts of $20,000 for M and $15,000 for O.

2. Interest at 8% on the average capital account balances during the year.

3. Remainder divided as follows

L - 20%

M – 15%

N – 40%

O – 25%

The partnership incurred a loss of $35,000 during 2020.

During 2020 L invested an additional $25,000 in capital on August 1, 2020. M made two capital withdrawals of $10,000 each on April 1, 2020 and September 1, 2020 and O made a capital contribution of $30,000 on May 1, 2020.

REQUIRED: Prepare a schedule showing the allocation of the partnership income to each partner for 2020

Answer 1

Statement for Allocation of Partnership income To Profit and Loss 35000 By Loss Distributed in Partners To Fixed amt to partners 20% 22771.07 |м 20000 M 15% 17078.30 O 15000 35000 N 40% 45542.14 To Interest on Capital o 25% 28463.84 5938.85 | М 8388.82 N 11967.12 O 17560.55 43855.34 113855.34| 113855.34 113855.34 Working Note 1 M N 63824.66 115682.19 -7506.85 O 149589.04 199452.05 20054.79 Transaction Year End Days diff 1/2/2020 12/31/2020 364 Capital Investment 4/1/2020 12/31/2020 274 Cash withdrawal 5/1/2020 12/31/2020 244 Additional investment 8/1/2020 12/31/2020 152 Additional investment 9/1/2020 12/31/2020 121 Cash withdrawal Average Capital on 31-12-2020 Interest on Capital @ 8% on Average Capital 10410.96 -3315.07 74235.62 104860.27 5938.85 8388.82 149589.04 219506.85 11967.12 17560.55

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