Question

C. Eastwood, A. North, and M. West are manufacturers’ representatives in the architecture business. Their capital accounts in the ENW partnership for 20X1 were as follows:

C. Eastwood, Capital

9/1	9,500		1/1	31,100
			5/1	6,400

A. North, Capital

3/1	9,400		1/1	41,000
			7/1	6,000
			9/1	5,600

M. West, Capital

8/1	13,800		1/1	51,600
			4/1	8,300
			6/1	4,000

Required:

For each of the following independent income-sharing agreements, prepare an income distribution schedule.

a.

Salaries are $16,200 to Eastwood, $20,500 to North, and $19,500 to West. Eastwood receives a bonus of 5 percent of net income after deducting his bonus. Interest is 10 percent of ending capital balances. Eastwood, North, and West divide any remainder in a 3:3:4 ratio, respectively. Net income was $77,700. (Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.) Eastwood North West Total Profit ratio 0 Ending capital Net income Salary 0 Bonus 0 Interest on ending capital balance 0 Residual income (deficit) $0 Allocate 0 Total $0 $0 $0 $0

b.

Interest is 10 percent of weighted-average capital balances. Salaries are $25,000 to Eastwood, $21,800 to North, and $26,300 to West. North receives a bonus of 10 percent of net income after deducting the bonus and her salary. Any remainder is divided equally. Net income was $68,990. (Do not round intermediate calculations. Round the final answers to nearest whole dollar. Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.)

Eastwood North West Total Profit ratio 0 Average capital Net income Interest on average capital balance 0 Salary 0 Bonus 0 Residual income (deficit) $0 Allocate 0 Total $0 $0 $0 $0

c.

West receives a bonus of 20 percent of net income after deducting the bonus and the salaries. Salaries are $22,100 to Eastwood, $18,300 to North, and $15,400 to West. Interest is 10 percent of beginning capital balances. Eastwood, North, and West divide any remainder in an 8:7:5 ratio, respectively. Net income was $95,160. (Do not round intermediate calculations. Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.) Eastwood North West Total Profit ratio 0 Beginning capital Net income Bonus 0 Salary 0 Interest on beginning capital balance 0 Residual income (deficit) $0 Allocate 0 Total $0 $0 $0 $0

Answer 1

a.				C.Eastwood capital
	Date			Debit	Date			Credit
	01-Sep			9500	01-Jan			31100
					01-May			6400
				9500				37500
					End.Bal			28000
				A. North capital
	Date			Debit	Date			Credit
	01-Mar			9400	01-Jan			41000
					01-Jul			6000
					01-Sep			5600
				9400				52600
					End.Bal			43200
				M. West capital
	Date			Debit	Date			Credit
	01-Aug			13800	01-Jan			51600
					01-Apr			8300
					01-Jun			4000
				13800				63900
					End.Bal			50100
	Particulars			Eastwood	North	West	Total
	Profit ratio			3	3	4	10
	Ending capital			28000	43200	50100
	Net income						77700
	Salary			16200	20500	19500	56200
	Bonus	(Note:1)		3700	0	0	3700
	Interest on ending capital balance			2800	4320	5010	12130
				(28000*10%)	(43200*10%)	(50100*10%)
	Residual income (deficit)						5670
	Allocate			1701	1701	2268	-5670
				(5670*3/10)	(5670*3/10)	(5670*4/10)
	Total			24401	26521	26778	0
	Note:1- Computation of Bonus
	Let's assume Bonus=X, Then
	X=0.05(77700-X)
	20X=77700-X
	21X=77700
	X=$ 3700
b.	Average capital balances
	Eastwood
	Date	Debit	Credit	Balance	Months Maintained	Months* $ balance
	01-Jan		31100	31100	4	124400
	01-May		6400	37500	4	150000
	01-Sep	9500		28000	4	112000
					12	386400
			Average capital=386400/12=$ 32200
	North
	Date	Debit	Credit	Balance	Months Maintained	Months* $ balance
	01-Jan		41000	41000	2	82000
	01-Mar	9400		31600	4	126400
	01-Jul		6000	37600	2	75200
	01-Sep		5600	43200	4	172800
					12	456400
			Average capital=456400/12=$ 38033
	West
	Date	Debit	Credit	Balance	Months Maintained	Months* $ balance
	01-Jan		51600	51600	3	154800
	01-Apr		8300	59900	2	119800
	01-Jun		4000	63900	2	127800
	01-Aug	13800		50100	5	250500
					12	652900
			Average capital=652900/12=$ 54408
	Particulars			Eastwood	North	West	Total
	Profit ratio			1	1	1	3
	Average capital			32200	38033	54408
	Net income						68990
	Interest on average capital balance @ 10%			3220	3803	5441	12464
	Salary			25000	21800	26300	73100
	Bonus	(Note:2)			4290		4290
	Residual income (deficit)						-20864
	Allocate	Equally		-6955	-6954	-6955	20864
	Total			21265	22939	24786	0
	Note:2- Computation of Bonus
	Let's assume Bonus=X, Then
	X=0.10*(68990-21800-X)
	10X=47190-X
	11X=47190
	X=47190/11=$ 4290
c.	Particulars			Eastwood	North	West	Total
	Profit ratio			8	7	5	20
	Beginning capital			31100	41000	51600
	Net income						95160
	Bonus	(Note:3)				13293	13293
	Salary			22100	18300	15400	55800
	Interest on beginning capital balance @ 10%			3110	4100	5160	12370
	Residual income (deficit)						13697
	Allocate	at 8:7:5		5479	4794	3424	-13697
	Total			30689	27194	37277	0
	Note:3- Computation of Bonus
	Let's assume Bonus=X, Then
	X=0.20*(95160-15400-X)
	5X=79760-X
	6X=79760
	X=79760/6=$ 13293