Question

Faith Busby and Jeremy Beatty started the B&B partnership on January 1, 2018. The business acquired $65,100 cash from Busby and $144,900 from Beatty. During 2018, the partnership earned $63,900 in cash revenues and paid $32,850 for cash expenses. Busby withdrew $2,400 cash from the business, and Beatty withdrew $3,900 cash. The net income was allocated to the capital accounts of the two partners in proportion to the amounts of their original investments in the business. Required: Prepare an income statement, capital statement (statement of changes in equity), balance sheet, and statement of cash flows for B&B’s 2018 fiscal year.

Answer 1

Income Statement for the year ended December 31,2018:

Sales	63,900
Cost of Goods sold	32,850
Gross Profit	31,050
Operating Expenses	-
Net Income	31,050

Profit sharing ratio in proportion to the amounts of original investment by Busby and Beatty will be 65100:144900. This can be further simplified into 31:69 (Dividing the ratio by 2100).

Since Net Income is $31,050 each partner's share:

Busby = 31050 X 31/(31+69) = 31050 X 31/100 = $9626

Beatty = 31050 X 69/(31+69) = 31050 X 69/100 = $21,424

Partners' Capital for the year ended December 31, 2018:

	Busby	Beatty	Total
Capital Balances on January 1, 2018	-	-	-
Add: Investments	65,100	144,900	210,000
Net Income	9,626	21,424	31,050
Less: Withdrawals	(2,400)	(3,900)	(6,300)
Capital Balances on December 31, 2018	72,326	162,424	234,750

Balance Sheet as of December 31, 2018:

Assets
Current Assets
Cash	234,750
Total assets	234,750
Liabilities and Stock Holder's Equity
Stock holder's Equity
Common Stock	234,750
Total Liabilities and Stock Holder's Equity	234,750

Statement of Cash Flow for the year ended December 31, 2018:

Cash Flow from Operating Activities
Net Profit before tax	(a)	31,050
Cash Flow from Investing Activities	(b)	-
Cash Flow from Financing Activities
Capital Introduced by Partners	(c)	210,000
Drawings by Partners	(d)	(6,300)
Net cash flow	(a+b+c+d)	234,750
Add : Balance of cash at beginning of the year		-
Balance of cash at the end of the year		234,750