This activity requires teamwork to reinforce understanding of accounting for partnerships.
Required
1. Assume that Baker, Warner, and Rice form the BWR Partnership by making capital contributions of $200,000, $300,000, and $500,000, respectively. BWR predicts annual partnership net income of $600,000. The partners are considering various plans for sharing income and loss. Assign a different team member to compute how the projected $600,000 income would be shared under each of the following separate plans:
a. Shared equally.
b. In the ratio of the partners’ initial capital investments.
c. Salary allowances of $50,000 to Baker, $60,000 to Warner, and $70,000 to Rice, with the remaining balance shared equally.
d. Interest allowances of 10% on the partners’ initial capital investments, with the remaining balance shared equally.
2. In sequence, each member is to present his or her income-sharing calculations with the team.
3. As a team, identify and discuss at least one other possible way that income could be shared.