Partners Johnson, Kane and Lehman agreed to the following provisions for sharing profit or loss from their partnership:
1. Johnson, Kane and Lehman receive salaries of $42,000, $35,000, and $50,000, respectively.
2. Interest on average capital investment is credited at the rate of 10 percent per annum.
3. Residual profit or loss is shared in the ratio 4:5:1.
4. All provisions are to be fully implemented.
The average capital investments for the year are:
Johnson........................................................................$186,000
Kane..............................................................................275, 000
Lehman...........................................................................83,000
Required
a. Prepare a schedule to allocate partnership income of $217,000.
b. Repeat part a for income of $112,000.
c. Suppose Johnson, as managing partner, is entitled to a bonus of 15 percent of profit after the bonus but before other allocation provisions. Assume partnership income is $217,000. Without re-doing the entire schedule, calculate the effect of the bonus on the net allocation to Johnson and the other partners.