Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gray, Stone, and Lawson open an accounting practice on January 1, 2013, in San Diego, California, to be operated as a partnership. Gray and Stone

Gray, Stone, and Lawson open an accounting practice on January 1, 2013, 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 the bonus cannot be a negative amount.

(4)

Any remaining partnership profit or loss is to be divided evenly among all partners.

Because of monetary problems encountered in getting the business started, Gray invests an additional $9,100 on May 1, 2013. On January 1, 2014, 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 Monets entrance into the firm; the general provisions continue to be applicable.

The billable hours for the partners during the first three years of operation follow:

2013 2014 2015
Gray 1,710 1,800 1,880
Stone 1,440 1,500 1,620
Lawson 1,300 1,380 1,310
Monet 0 1,190 1,580

The partnership reports net income for 2013 through 2015 as follows:

2013 $ 65,000
2014 (20,400)
2015 152,800

Each partner withdraws the maximum allowable amount each year.

a.

Determine the allocation of income for each of these three years.

Income Allocation2013
Gray Stone Lawson Totals
Salary allowance $0
Interest 0
Bonus 0
Remaining profit/loss 0
Income allocation $0 $0 $0

$0

Income Allocation2014
Gray Stone Lawson Monet Totals
Salary allowance $0
Interest 0
Bonus 0
Remaining profit/loss 0
Income allocation $0 $0 $0 $0

$0

Income Allocation2015
Gray Stone Lawson Monet Totals
Salary allowance $0
Interest 0
Bonus 0
Remaining profit/loss 0
Income allocation $0 $0 $0 $0

$0

b.

Prepare in appropriate form a statement of partners' capital for the year ending December 31, 2015. (Amounts to be deducted should be indicated with minus sign. Round your answers to nearest dollar amounts.)

Capital Account Balances 1/1/15 12/31/15

GRAY, STONE, LAWSON, and MONET
Statement of Partners' Capital
For the Year Ending December 31, 2015
Gray Stone Lawson Monet Totals
Beginning balances $0
Profit allocation 0
Drawings 0
Income allocation $0 $0 $0 $0 $0

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Alternative Minimum Tax For Individuals IRS Audit Technique Guide ATG

Authors: Internal Revenue Service

1st Edition

1304131556, 978-1304131553

More Books

Students also viewed these Accounting questions

Question

Use a diagram to explain how the run-length encoding method works.

Answered: 1 week ago