The ledger of Peter Dixon and May Fawler, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 2006:

Cash .....................$ 22,000

Accounts Receivable .............. 38,900

Supplies ................... 1,900

Land ..................... 25,000

Building ................... 130,000

Accumulated Depreciation—Building ........ 69,200

Office Equipment ............... 39,000

Accumulated Depreciation—Office Equipment .... 21,500

Accounts Payable ............... 2,100

Salaries Payable ................ 2,000

Peter Dixon, Capital ............... 75,000

Peter Dixon, Drawing .............. 60,000

May Fawler, Capital ................ 55,000

May Fawler, Drawing ............... 75,000

Professional Fees ................. 285,650

Salary Expense ................. 80,500

Depreciation Expense—Building .......... 10,500

Property Tax Expense ............... 8,000

Heating and Lighting Expense ........... 7,900

Supplies Expense ................ 2,850

Depreciation Expense—Office Equipment ....... 2,800

Miscellaneous Expense .............. 6,100

The balance in Fawler’s capital account includes an additional investment of $5,000 made on August 10, 2006.

Instructions

1. Prepare an income statement for 2006, indicating the division of net income. The articles of partnership provide for salary allowances of $30,000 to Dixon and $40,000 to Fawler, allowances of 12% on each partner’s capital balance at the beginning of the fiscal year, and equal division of the remaining net income or net loss.

2. Prepare a statement of partner’s equity for 2006.

3. Prepare a balance sheet as of the end of 2006.