CORPORATION SIMULATION

ACTIVITY 1: Partnership Accounting

Jim Beaver, Sandra Smith, and Keith Holden formed a partnership by making capital contributions of $144,000, $216,000 and $120,000 respectively. They predict annual partnership net income of $240,000 and are considering the following alternative plans of sharing income and loss: a) Equal distribution; b) According to the ratio of their initial capital investments; c) Salary allowances of $40,000 to Beaver, $30,000 to Smith, and $80,000 to Holden; interest allowances of 12% on their initial capital investments; and the balance shared

equally

Students should use Microsoft Excel to formulate responses to tasks assigned in this simulation, using either free-form, or refer to samples and templates provided to reproduce what is necessary to complete activity tasks. TASK 1: Prepare a table with the following column headings:

Income (Loss) Sharing Plan Calculations Beaver Smith Holden Total Use the table to show how to distribute net income of $240,000 for the calendar year under each of the alternative plans being considered (round answers to nearest whole dollar).

TASK 2: Prepare a Statement of Partners Equity

Show the allocation of income to the partners assuming they agree to use plan (c), that income earned is $87,600, and that Beaver, Smith and Holden withdraw $18,000, $38,000 and $24,000 respectively, at year-end.

TASK 3: Prepare Journal entries

Close Income Summary, assuming partners agree to use plan (c) and that net income is $87,600. Close withdrawal accounts.