The following are the adjusted account balances of Allen and Wells as of December 31, the end of the current fiscal year:

There were no changes in the partners’ Capital accounts during the year. The merchandise inventory at the beginning of the year was $141,234. The partner¬
ship agreement provides for salary allowances of $32,000 for Allen and $28,000 for Wells. It also stipulates an interest allowance of 10 percent on invested capital at the beginning of the year, with the remainder of the net income to be divided equally.

Instructions 1. Prepare an income statement for the year.
2. Prepare a statement of partners’ equity for the year.
3. Prepare a classified balance sheet for the partnership at the end of the year.

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Accounts Payable Accounts Receivable Accumulated Depreciation, Equipment R. M. Allen, Capital $ 67,432 53,438 45,380 60,000 R. M. Allen, Drawing 32,000 Allowance for Doubtful Accounts 1,842 Cash 3,658 Equipment 73,838 Freight In 22,047 General Expenses (control) 14,646 Interest Expense 3,432 Merchandise Inventory 129,452 Notes Payable 20,000 Prepaid Insurance 720 Purchases 529,133 Purchases Returns and Allowances 25,452 Purchases Discount 4,220 Sales 700,490 Sales Returns and Allowances 36,838 Selling Expenses (control) 37,832 C. C. Wells, Capital C. C. Wells, Drawing 48,000 24,000