Money and Banking
Question 12-5) in this situation the partnership income is split according to the agreement. The partners take their allowances and then split the balance according to the agreement. The partners made $98,800 in profit. From this, they take their salary allowances. Kramer takes $50,000 and Knox takes $40,000. They then take the 10% interest allowances. Kramer invested $60,000 so he takes $6,000. Knox invested $80,000 so he takes $8,000. At this point, no profit remains and in fact there is a negative balance of $5,200. This remainder is divided amongst the partners based on the sharing agreement, so 50/50. Thus, they each take a deficit of $2,600.
This gives Kramer a total of 50,000 + 6000-2600 = $53,400. For Knox, the figures are 40,000 + 8000-2600 = $$45,400.
The same calculation is used if the partnership loses money. The initial loss recorded is $16,800. Once Kramer and Knox take their respective salary and interest allowances, the loss becomes $120,800. This is divided equally as per the agreement, so each partner takes a loss of $60,400. After this loss is subtracted from their respective payouts, Kramer has a loss of $4,400 and Knox has a loss of $12,400.
12-8) if Tulip is paid $60,000 for her equity, that is a no bonus scenario. The entry would be:
Tulip, capital $60,000
Cash $60,000
If Tulip is paid $80,000 that is a bonus to the retiring partner. The remaining partners would pay out Tulip based on their new income sharing ratios, which would be 5:3, reflecting the degree of increased share each has of the partnership with the withdrawal of Tulip. The payout is $20,000.
Tulip, capital $60,000
Holland, capital $12,500
Flowers, capital $7,500
Cash $80,000
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