Question

Mike and Rachel form M&R Partnership. Mike invests $40,000 cash and Rachel invests $60,000 cash. The partners ag income as follows: Mike gets a salary allowance of $5,000 per year and Rachel gets a salary allowance of $9,000 per an annual interest allowance of 10% on their initial investment; and any remaining balance is shared equally. Net incom $30,000. Also, Mike withdrew $1,000 cash from the partnership and Rachel withdrew $2,000. Prepare a statement of partners' equity for the year ended December 31. (Do not round intermediate calculations. E allowances as positive values. Enter losses and withdrawals as negative values.) M&R PARTNERSHIP Statement of Partners' Equity For Year Ended December 31 Mike Rachel Initial partnership investments Net income Total 0 Total net income 0 0 OOOO Total 0 $ 0 $ $

Answer 1

Calculation of distribution of profits:
Net Income=$30,000
+Salary allowance=$5000+$9000=$14,000

+Interest on capital=$4,000+$6,000=$10,000

Total income=$54,000

Total income to be distributed in equal ratio:
Mike share=$54,000*1/2=$27,000
Rachel share=$54,000*1/2=$27,000

Partner’s Equity=Initial Capital+ share in profit-drawings

Mike=$40,000+$27,000-$1,000=$66,000
Rachel=$60,000+$27,000-$2,000=$85,000