Question
Year 2015 Allen and Hamilton decide to form a partnership. On January 1, 2015, Hamilton invests a building ($60,000), equipment ($20,000) and cash ($10,000). Allen
Year 2015
Allen and Hamilton decide to form a partnership. On January 1, 2015, Hamilton invests a building ($60,000), equipment ($20,000) and cash ($10,000). Allen will run the business but is making no tangible contribution. He and Hamilton will share the initial investments equally.
Allen and Hamilton have the following profit and loss agreement:
Hamilton will be credited annually with interest equal to 20% of the beginning capital balance for the year.
Allen and Hamilton share the profits and losses 80:20.
Neither partner is allowed to withdraw funds from the partnership during 2015. Thereafter, each partner can withdraw $5,000 annually or 20% of the beginning capital balance for the year, whichever is larger.
The partnership reported a net loss of $10,000 during 2015.
Year 2016
On January 1, 2016, Graves becomes a third partner in this business by contributing $15,000 cash to the partnership (payment is made to the partnership). Graves receives a 20% share of the companys capital.
Allen, Graves and Hamilton have the following profit and loss agreement:
Hamilton will be credited annually with interest equal to 20% of the beginning capital balance for the year.
Allen, Graves and Hamilton share the profits and losses 55:30:15.
Each partner can withdraw $5,000 annually or 20% of the beginning capital balance for the year, whichever is larger.
The partnership recorded a net income of $44,000. Each partner withdraws the full amount that is allowed.
Year 2017
On January 1, 2017, Graves sells his ownership (with the consent of the partners) to Ross. Ross pays $30,000 directly to Graves. The profit and loss agreement remains the same, but with Ross in place of Graves. The partnership recorded a net income of $65,000. Each partner withdraws the full amount that is allowed.
Present the allocation of income and the Statement of Partners Capital for the years ended 2015, 2016 and 2017.
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