Question

L and M are partners in Elem Co. each contributing $50,000 towards their capital. On March 31, 2018 the business reported the following: a. Sales turnover of $900,000 b.Cost of goods sold $400,000 c. Operating Expenses $200,000 d. L and M are to be paid a salary of $3,000 and $2,000 salary per month respectively. e. Both the partners are to receive interest on capital @6% per annum. f. M is to receive a bonus of $30,000 if sales exceeded $600,000 in any year and L is to be paid a commission of 4% on all sales. There was no agreement regarding the sharing of profits between partners. The provisions of the Partnership Act was to be applied in this case. REQUIRED: If you prepare a statement to show the distribution of income between the partners. and to determine the capital account balances of the partners on March 31, 2018.

Answer 1

Income statement
Sales revenue	$        900,000
Cost of goods sold	$        400,000
Gross profit	$        500,000
Operating expenses	$        200,000
Net income	$        300,000

If the parners have no agreement regarding the sharing of profits then profit distributed to equally.
	Partner L	Partner M	Total
Net income			$        300,000
Less: salary (3000*12) (2000*12)	$          36,000	$        24,000	$           60,000
			$        240,000
Less: Interest (50000*6%)	$            3,000	$          3,000	$             6,000
			$        234,000
Less: Bonus and commission [M= (900000*4%)]	$          30,000	$        36,000	$           66,000
Remaining net income			$        168,000
Remaining net income allocated to partners (168000/2)	$          84,000	$        84,000	$        168,000
			$                    -
Distribution of income between the partners
Interest	$            3,000	$          3,000	$             6,000
Bonus and commission	$          30,000	$        36,000	$           66,000
Salary	$          36,000	$        24,000	$           60,000
Remaining Net income	$          84,000	$        84,000	$        168,000
Distribution of net income	$        153,000	$     147,000	$        300,000

	Partner L	Partner M	Total
Beginning balance	$                     0	$                  0	$                     0
Amount invested	$          50,000	$        50,000	$        100,000
Total	$          50,000	$        50,000	$        100,000
Distribution of net income	$        153,000	$     147,000	$        300,000
Withdrawals [less] (if any)	$                     0	$                  0	$                     0
Capital account balances on March 31, 2018	$        203,000	$     197,000	$        400,000