Question
In: Accounting
The Articles of Partnership for partners Moon, Sun, and Stars stipulate 10% interest allowance for each...
The Articles of Partnership for partners Moon, Sun, and Stars
stipulate 10% interest allowance for each partner based on average
capital balances during 2020. The beginning capital balances for
Moon, Sun, and Stars on January 1, 2020 are $100,000, $250,000, and
$400,000, respectively. On April 1, 2020, Moon invests additional
20,000 in the partnership. On July 1, 2020 Star withdraws 50,000
from the partnership. During 2020, Sun and Stars have drawings of
60,000 and 20,000, respectively.
During 2020, partners Sun and Stars receive salary allocation
of 60,000 and 20,000, respectively.
If the partnership’s Net Income for the period after salary
allocations are considered is above 130,000, Stars is also going to
receive a bonus allowance of 10% of Net Income. The measure of Net
Income used to determine the actual amount of the bonus is Net
Income after bonus and interest allocations are considered, but
before salary allocations are considered. The profit-and-loss
sharing ratios for the partnership are: Moon (20%), Sun (50%), and
Stars (30%)
1-Assume that the partnership’s net income for 2020 is
$250,000. What is the TOTAL partnership RESIDUAL INCOME allocation
in 2020? What is the total partnership profit allocation for Moon,
Sun, and Stars, respectively? (10 points)
2-Assume that the partnership’s net income for 2020 is
$250,000. Prepare the journal entry to close the NI into the
Capital balances of the partners. (5p.)
Solutions
Expert Solution
1. CALCULATION OF INTEREST ON PARTNERS CAPITAL
| PARTICULARS | MOON $ | SUN $ | STARS $ |
| OPENING CAPITAL ( 01.01.2020 ) | 100,000 | 250,000 | 400,000 |
| ADD : ADDITIONAL CAPITAL INVESTED (01.04.2020) | 20,000 | ||
| LESS : WITHDRAWINGS ( 01.07.2020 ) | 50,000 | ||
| LESS : DRAWINGS | 60,000 | 20,000 | |
| CLOSING CAPITAL | 120,000 | 190,000 | 330,000 |
| AVERAGE CAPITAL | 115,000 | 220,000 | 365,000 |
| INTEREST ON CAPITAL @10% | 11,500 | 22,000 | 36,500 |
CALCULATION OF AVERAGE CAPITAL :
MOON : (100,000 * 3 + 120,000*9) /12 = 115,000
SUN : ( 250,000*6 + 190,000*6) / 12 = 22,000
STARS : ( 400,000*3 + 330,000*6) /12 = 365,000
**TOTAL PARTNERSHIP RESIDUAL INCOME AND PROFIT/LOSS ALLOCATION IN2020
| PARTICULARS | MOON $ | SUN $ | STARS $ |
| SALARY | 60,000 | 20,000 | |
| BONUS | |||
| ( NO BONUS BECAUSE NET INCOME IS BELOW 130,000 ) | |||
| PROFIT /LOSS ALLOCATION ( 20:50:30 ) | 50,000 | 125,000 | 75,000 |
| TOTAL | 50,000 | 185,000 | 95,000 |
ekkarill92 answered 1 year agoRelated Solutions
The Articles of Partnership for partners Moon, Sun, and Stars stipulate 10% interest allowance for each...
The Articles of Partnership for partners Moon, Sun, and Stars
stipulate 10% interest allowance for each partner based on average
capital balances during 2020. The beginning capital balances for
Moon, Sun, and Stars on January 1, 2020 are $100,000, $250,000, and
$400,000, respectively. On April 1, 2020, Moon invests additional
20,000 in the partnership. On July 1, 2020 Star withdraws 50,000
from the partnership. During 2020, Sun and Stars have drawings of
60,000 and 20,000, respectively.
During 2020, partners Sun...
The Articles of Partnership for partners Moon, Sun, and Stars stipulate 10% interest allowance for each...
The Articles of Partnership for partners Moon, Sun, and Stars
stipulate 10% interest allowance for each partner based on average
capital balances during 2020. The beginning capital balances for
Moon, Sun, and Stars on January 1, 2020 are $100,000, $250,000, and
$400,000, respectively. On April 1, 2020, Moon invests additional
20,000 in the partnership. On July 1, 2020 Star withdraws 50,000
from the partnership. During 2020, Sun and Stars have drawings of
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