Question

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

					Amount $
	L	M	N	O	Total
Net Loss					-35,000
Less: Fixed Amounts		20,000		15,000	35,000
Balance					-70,000
Less: Interest Payment@8%	5,953	8,413	12,000	17,600	43,966
Balance					-113,966
Less: Remainder divided	-22,793	-17,095	-45,586	-28,492	-113,966
Balance					-
Total Allocation of Income	-16,840	11,318	-33,586	4,108	-35,000
Working:
Average Capital
L	Amount	Weight	Weighted Average
Opening Capital	64,000	12/12	64,000
Add. Capital 1 August	25,000	5/12	10,417
Total			74,417
M	Amount	Weight	Weighted Average
Opening Capital	116,000	12/12	116,000
Less: Withdrawal 1 April	-10,000	9/12	-7,500
Less: Withdrawal 1 September	-10,000	4/12	-3,333
Total			105,167
O	Amount	Weight	Weighted Average
Opening Capital	200,000	12/12	200,000
Add. Capital 1 May	30,000	8/12	20,000
Total			220,000