Question

Financial Statements for Partnerships

The ledger of Camila Ramirez and Ping Xue, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 20Y2:

Ramirez and Xue Trial Balance December 31, 20Y2
	Debit Balances		Credit Balances
Cash	70,300
Accounts Receivable	33,600
Supplies	5,800
Land	128,000
Building	175,000
Accumulated Depreciation—Building			80,000
Office Equipment	42,000
Accumulated Depreciation—Office Equipment			25,300
Accounts Payable			12,400
Salaries Payable			10,000
Camila Ramirez, Capital			125,000
Camila Ramirez, Drawing	35,000
Ping Xue, Capital			155,000
Ping Xue, Drawing	50,000
Professional Fees			555,300
Salary Expense	384,900
Depreciation Expense—Building	12,900
Heating and Lighting Expense	10,500
Depreciation Expense—Office Equipment	6,300
Property Tax Expense	3,200
Supplies Expense	3,000
Miscellaneous Expense	2,500
	963,000		963,000

The balance in Xue's capital account includes an additional investment of $20,000 made on May 5, 20Y2.

Required:

1. Prepare an income statement for 20Y2, indicating the division of net income. The partnership agreement provides for salary allowances of $50,000 to Ramirez and $65,000 to Xue, allowances of 12% on each partner's capital balance at the beginning of the fiscal year, and equal division of the remaining net income or net loss.

Ramirez and Xue Income Statement For the Year Ended December 31, 20Y2
Operating expenses:
Total operating expenses
		$

Ramirez and Xue Division of Income For the Year Ended December 31, 20Y2
	Camila Ramirez	Ping Xue	Total
Division of net income:
Salary allowance
Interest allowance
Remaining income (loss)
Net income	$	$	$

2. Prepare a statement of partnership equity for 20Y2. If any amounts are zero, enter in "0".

Ramirez and Xue Statement of Partnership Equity For the Year Ended December 31, 20Y2
	Camila Ramirez	Ping Xue	Total
Balances, January 1, 20Y2
Capital additions
Net income for the year
Partner withdrawals
Balances, December 31, 20Y2	$	$	$

3. Prepare a balance sheet as of the end of 20Y2.

Ramirez and Xue Balance Sheet December 31, 20Y2
Assets
Current assets:
Total current assets			$
Property, plant, and equipment:
	$
Total property, plant, and equip.
Total assets			$
Liabilities
Current liabilities:
		$
Total liabilities			$
Partners' Equity
		$
Total partners' equity
Total liabilities and partners' equity			$

Answer 1

1.

Ramirez and Xue
Income Statement
For the Year Ended December 31, 20Y2
Professional fees		555300
Operating expenses:
Salary expense	384900
Heating and lighting expense	10500
Depreciation expense-building	12900
Depreciation expense-office equipment	6300
Property tax expense	3200
Supplies expense	3000
Miscellaneous expense	2500
Total operating expenses		423300
Net operating income		132000

Ramirez and Xue
Division of Income
For the Year Ended December 31, 20Y2
	Camila Ramirez	Ping Xue	Total
Division of net income:
Salary allowance	50000	65000	115000
Interest allowance	15000	16200	31200
Remaining income (loss)	-7100	-7100	-14200
Net income	57900	74100	132000

Interest allowance:

Camila Ramirez: $125000 x 12% = $15000

Ping Xue: ($155000 - $20000) x 12% = $135000 x 12% = $16200

2.

Ramirez and Xue
Statement of Partnership Equity
For the Year Ended December 31, 20Y2
	Camila Ramirez	Ping Xue	Total
Balances, January 1, 20Y2	125000	135000	260000
Capital additions	0	20000	20000
Net income for the year	57900	74100	132000
Partner withdrawals	-35000	-50000	-85000
Balances, December 31, 20Y2	147900	179100	327000

3.

Ramirez and Xue
Balance Sheet
December 31, 20Y2
Assets
Current assets:
Cash		70300
Accounts receivable		33600
Supplies		5800
Total current assets			109700
Property, plant, and equipment
Land		128000
Building	175000
Accumulated depreciation-building	-80000	95000
Office equipment	42000
Accumulated depreciation-office equipment	-25300	16700
Total property, plant, and equipment			239700
Total assets			349400
Liabilities
Current liabilities:
Accounts payable		12400
Salaries payable		10000
Total liabilities			22400
Partners' Equity
Camila Ramirez, Capital		147900
Ping Xue, Capital		179100
Total partners' equity			327000
Total liabilities and partners' equity			349400