Question
Stephanie Barnes and Layla Taylor formed a partnership, Design Pros Imaging, last May. Each person contributed assets to the business and both partners work full-time
Stephanie Barnes and Layla Taylor formed a partnership, Design Pros Imaging, last May. Each person contributed assets to the business and both partners work full-time in the business. The business made a profit in the first year, which ended Dec. 31, but Layla and Stephanie are still discussing how to divide the net income equitably. The following table shows some options that their accountant worked up. Option Partner Taylor Barnes A. $28,800 $43,200 B. $48,000 $24,000 C. $6,660 $9,420 33,552 22,368 $40,212 $31,788 D. $33,500 $29,500 6,660 9,420 -1,770 -5,310 $38,390 $33,610 E. $33,500 $29,500 1,350 3,825 3,825 $37,325 $34,675 F. $36,000 $36,000 G. $6,660 $9,420 10,800 11,280 33,840 $28,740 $43,260 Unfortunately, the accountant's notes about each option have been lost. Stephanie remembers that the accountant proposed paying 4% interest yearly on each partner's capital investment at the beginning of the year. Layla asked the accountant to include at least one bHonus option. The accountant used last year's results to show how the net income would have been divided under each option. Taylor Barnes 1. What is each partners capital investment? $ $ 2. What is each partners proposed salary amount? $ $ 3. What was the net income for Design Pros Imaging last year? $ 4. Which option shows how the net income will be split if the partners do not reach an agreement? 5. In Option D, what do the negative amounts represent? 6. What is the last item in Option E that is divided between the partners? Another designer, Chad Mineart, joined the partnership on January 1, after all assets were adjusted to their market values. He is hoping to work in the business next year. The journal entries to record his admission follow. PAGE 5 JOURNALACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Jan. 1 Layla Taylor, Capital 16,650.00 2 Stephanie Barnes, Capital 35,325.00 3 Chad Mineart, Capital 51,975.00 4 1 Cash 45,000.00 5 Chad Mineart, Capital 45,000.00 1. How was Chad admitted to the partnership? Check all that apply. Participation through negotiation. Receipt of partner equity. Contribution of service and investment. Income redistribution to partners. Purchase from the existing partners. 2. What was the sales price of the equity that Chad purchased? 3. Assume that Layla and Stephanie have decided to adopt Option D on the Design Pros Imaging panel. They are wondering how the division of net income under Option D will change with the new partner. Assume that income is the same as the prior year. Chad will not have a salary allowance the first year, but any remaining net income will be shared equally among the partners. Using last years data as an example, extend Option D to allow for Chads participation. What would Chads share of the net income be? $
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