Kimble, Sykes, and Gerard open an accounting practice on January 1, 2019, in Chicago, Illinois, to be operated as a partnership. Kimble and Sykes will serve as the senior partners because of their years of experience. To establish the business, Kimble, Sykes, and Gerard contribute cash and other properties valued at $313,000, $232,500, and $144,500, respectively. An articles of partnership agreement is drawn up stipulating the following: Personal drawings are allowed annually up to an amount equal to 10 percent of the partner's beginning capital balance for the year. Profits and losses are allocated according to the following plan: 1. Each partner receives an annual salary allowance of $55 per billable hours worked. 2. Interest is credited to the partners' capital accounts at the rate of 12 percent of the beginning capital balance for the year. 3. Kimble and Sykes are eligible for an annual bonus of 10 percent of net income after subtracting the bonus, salary allowance, and interest. The agreement also states 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. On January 1, 2020, the partners admit Nichols to the partnership. Nichols 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 profit and loss sharing agreement is not altered upon Nichols' 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: Kimble Sykes Gerard Nichols 2019 4,220 3,960 3,820 0 2020 1,800 1,500 1,380 1,560 2021 1,880 1,620 1,310 1,550 The partnership reports net income (loss) for 2019 through 2021 as follows: The partnership reports net income (loss) for 2019 through 2021 as follows: 2019 2020 2021 $ 345,000 (18,700) 540,000 Each partner withdraws the maximum allowable amount each year. a. Prepare schedules that allocate each year's net income to the partners. b. Prepare in appropriate form a statement of partners' capital for the year ending December 31, 2021. Req A 2019 Req A 2020 Req A 2021 Reg B Prepare schedules that allocate for 2021 net income to the partners. (Do not round intermediate calculations. Round your answers to the nearest dollar amounts.) Net Income Allocation2021 Kimble Sykes Gerard Nichols Totals Net income $ Salary allowance 103,400 89,100 $ 72,050 $ 85,250 34,215 540,000 (349,800) (136,860) 0 Interest 47,642 33,862 21,141 Bonus 0 0 Remaining net income $ 53,340 0 Total allocation $ 151,042 $ 122,962 $ 93,191 $ 119,465 $ 53,340 Req A 2019 Req A 2020 Req A 2021 Req B Prepare in appropriate form a statement of partners' capital for the year ending December 31, 2021. (Amounts to be deducted should be indicated with minus sign. Do not round intermediate calculations. Round your answers to nearest dollar amounts.) KIMBLE, SYKES, GERARD, and NICHOLS Statement of Partners' Capital For the Year Ending December 31, 2021 Kimble Sykes Gerard $ 397,020 $ 282,182 $ 176,173 Nichols Totals $ 285,125 $ 1,140,500 0 Beginning balances Profit allocation Drawings Ending Balances 0 $ 397,020 $ 282,182 $ 176,173 $ 285,125 $ 1,140,500
