Problem 9 Lancaster and Reed are partners in a successful sporting goods store. Their profit and loss sharing agreement stipulates that interest of 10% is to be allowed on beginning capital balances, that annual salaries of S40,000 to Lancaster and S29,000 to Reed are to be paid, and that any remaining profit or loss is to be shared 2:1 between Lancaster and Reed. The January 1, Year 5, condensed balance sheet is shown below: LANCASTER AND REED BALANCE SHEET January 1, Year 5 Assets Cash $ 10,000 Inventory 475,000 Office equipment-net 25,000 Other assets 5,000 $515,000 Liabilities Accounts payable Sales tax payable $211,000 9,000 $220,000 Partners' equity Lancaster Reed $190,000 105,000 $295,000 $515,000 During Year 5, the partnership earned $130,000 before partners' salary and interest, and Lancaster and Reed had drawings of $50,000 and $60,000 respectively. On January 1, Year 6, the partnership decided to admit Jackson as a partner with a 25% interest in the partnership for a cash contribution of $125,000. The bonus method was used to admit Jackson The profit and loss sharing agreement was amended as follows: Interest of 12% on beginning capital Annual salaries of S40,000 to Lancaster and $31,200 to Reed. Remaining profit or loss to be shared in a 2:1:1 ratio by Lancaster, Reed, and Jackson The partnership reported profit before partners' interest and salary of $180,000 in Year 6, and each partner withdrew $50,000. Required: Prepare, in good form, a statement of changes in partners' capital accounts from January 1. Year 5, to December 31, Year 6. Show your calculations. (CGA adapted)