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Gray, Stone, and Lawson open an accounting practice on January 1, 2016 in San Diego, California, to be operated as a partnership Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $210,000, $180,000, and $90,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: • Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year. • Profits and losses are allocated according to the following plan 1. A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year 2. Interest is credited to the partners' capital accounts at the rate of 12 percent of the average monthly balance for the year computed without regard for current income or drawings) 3. An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if there is a net loss or if salary and interest result in a negative remainder of net income to be distributed 4. Any remaining partnership profit or loss is to be divided evenly among all partners Because of financial shortfalls encountered in getting the business started, Gray invests an additional 59100 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 25 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet's entrance into the form the general provisions continue to be applicable The billable hours for the partners during the first three years of operation follow 2016 1,710 1,440 1,300 2017 1,0 1,500 1,350 1.100 2018 1,880 1,620 1,310 1.588 The partnership reports net income for 2016 through 2018 as follows: $ 65,000 (20,400) 152.0 Farhan withdraws the maximum allowable amount each year.

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1. Allocation for 2016-2017-2018 Gray Stone Lawson Total Capital Contributed (440000 4/12)+19500+440000) "8/12 446,333 410.000 205,000 12 % 12 % 12 % Rate of Interest on Capital Amout of interest 53,560 49,200 24,600 127,360 Income allocation for 2016 Gray Stone Lawson Total Salary allowance@8 Per Billable Hour Interest 16,080 13,360 28,800 38,240 53,550 49,200 24,000 127,300 Bonus (as the amount of salary and interest is grealer) Remaining loss distributed equally (101000-58240-127360) 1/3 -28200 28200 28200 -81600 Allocation of Profit 41,440 34,360 25,00 101,000 Calculation of Ending Balances Total Gray Stone Lawson Beginning Balance of Capitals 440,000 410,000 205,000 1055000 Add Additional Investment 9,500 9500 Profit Allocation 101000 41,440 34,360 25,200 |Less Drawings@10% on Beginning Balance (44,000 (41,000 20,500 -105500 Ending Balance of Capitals 446,940 403,360 200,700 1060000 Calulation of Monet's Investment in 2017 Monet's Investment 2%(00000M's Invastment MI 21200020MI 212000 75 MI 212000 MI 05 MI Incnme allncation foe 2016 Gray 32,300 53632.0 Stone awson Monet Total Salary allowance @8 Per Bilable Hour 14400 11360 12.880 71,440 Interest Bonus (as the amount of salary and inlerest is grealer) Remaining loss distributed equally (4300-71440-161120) 14 48,403.20 25.364.00 33920 M1.120 -09040 09040 9040 69040 (276100 Allocation of Profit (30,906) (23,0a (6,217) (41,800 17,1

Calculation of Ending Balances Sone Total Gray Lawson Monet Beginning Balance of Capitals 446340 403.350 209,700 282057 L342467 (30,996 Loss Allocation 17.39 (6237 40.336 356,787 (43000 (28,267 (134.267) 1.164.800 (23,700) Less Drawings@10% on Beginning Balance Ending Balance of Capitals (44654 419.639 (20,970 157,734 230.640 Monet Income allocation for 2017 Salary allowance8 Per Blable Hour Interest Bonus (as the amount of salary and interest is greater) Remaining loss distributed equaily (225000-60000-139776-4586)14 Allocation of Profit Total Gray 17040 Stone won 14950h 0,000 12.800 15200 30,15 42834 ,3 27,677 13,776 458G 22 229% 5160 530 5180 5,10 20,3 24849 65.227 36,888 48,06 225,000 Calculation of Ending Balances Monet Gray 419439 Shone Lawson Total Beginning Balance of Capitals 356787 157.734 230.640 L164800 36888 (5.773) Profe Allotation 74849 65.227 48,03 225.000 Less Drawings@10% on Beginning Balance (23,064 35871 86,336 (41.964 452,524 93436 Ending Balance of Capitals 178,8 255,612 1,26,384 10%(N Inme-Salary-Interest-Donua Dunus 10%1225000-90000-13977-Bonus Bonus 25224-10 Dunus 1.10 Bonus 25224 Bonus 25224 Bonus 2253 2. the statement of Partner's Capita GRAY, STONE, AND LAWSON Statement of Partners' Capital Gay Stone Monet Total awson eginning alance of Capitsl 254,8 s,227 (5,679 a, 157,734 49,6 230640 1,100 4845 (41.964 Profit Allocation 4 (8064 1, z,0 ess Drawings@% on 8eginning 8alance Fnding Ralance at Capitals (98416) 1 4 452,34 2543

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