In: Accounting
Kimble, Sykes, and Gerard open an accounting practice on January 1, 2019, in Chicago, Illinois, to be operated as a partnership. Kimble and Sykes will serve as the senior partners because of their years of experience. To establish the business, Kimble, Sykes, and Gerard contribute cash and other properties valued at $228,000, $190,000, and $102,000, respectively. An articles of partnership agreement is drawn up stipulating the following:
On January 1, 2020, the partners admit Nichols to the partnership. Nichols contributes cash directly to the business in an amount equal to a 25 percent interest in the book value of the partnership property subsequent to this contribution. The partnership profit and loss sharing agreement is not altered upon Nichols' entrance into the firm; the general provisions continue to be applicable.
The billable hours for the partners during the first three years of operation follow:
2019 | 2020 | 2021 | |
Kimble | 2,180 | 1,800 | 1,880 |
Sykes | 1,920 | 1,500 | 1,620 |
Gerard | 1,780 | 1,380 | 1,310 |
Nichols | 0 | 1,560 | 1,550 |
The partnership reports net income (loss) for 2019 through 2021 as follows:
2019 | $ | 294,000 |
2020 | (13,600) | |
2021 | 489,000 | |
Each partner withdraws the maximum allowable amount each year.
Prepare schedules that allocate each year's net income to the partners.
Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2021.
Prepare schedules that allocate for 2019 net income to the partners. (Loss amounts should be indicated with a minus sign.)
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Net Income Allocation—2020 | |||||
Kimble | Sykes | Gerard | Nichols | Totals | |
Net loss | |||||
Salary allowance | |||||
Interest | |||||
Bonus | |||||
Remainder to allocate | |||||
Total allocation |
Net Income Allocation—2021 | |||||
Kimble | Sykes | Gerard | Nichols | Totals | |
Net income | |||||
Salary allowance | |||||
Interest | |||||
Bonus | |||||
Remaining net income | |||||
Total allocation |
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