QUESTION $2(5$ MARKS$)$

Several years ago, Katherine and Eddie came together to establish the K & E partnership. At the

start of the year $2023,$ the capital account balances were as follows:

According to the partnership agreement, Katherine receives an annual salary of $$10,000,$ along

with a bonus equivalent to $5\%$ of the partnership's net income, for her managerial responsibilities.

Conversely, Eddie receives a fixed annual salary of $$12,000$ without any bonus provision. All

partners receive $10\%$ interest allowance on average capital balances. The remaining profits are

evenly divided between them.

In $2023,$ the partnership recorded a net income of $$88,000.$ Additionally, both Katherine and

Eddie made additional investments of $$5,000$ each on June $1,$ to facilitate a special purchase of

plant asset. On September $1,$ partners' withdrawal was $$15,000$ for Katherine and $$10,000$ for

Eddie.

REQUIRED:

a$)$ Prepare an income allocation schedule.

b$)$ Determine the capital balances of each partner as of December $31,2023.$