Partner Bonuses, Statement of Partners\' Equity The partnership of Angel Investo
ID: 2427552 • Letter: P
Question
Partner Bonuses, Statement of Partners' Equity The partnership of Angel Investor Associates began operations on January 1, 2016, with contributions from two partners as follows:
Dennis Overton $130,500
Ben Testerman $130,500
The following additional partner transactions took place during the year: 1. In early January, Randy Campbell is admitted to the partnership by contributing $65,250 cash for a 20% interest.
2. Net income of $126,000 was earned in 2016. In addition, Dennis Overton received a salary allowance of $44,300 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting Campbell.
3. The partners' withdrawals are equal to half of the increase in their capital balances from salary allowance and income.
Explanation / Answer
Answer:
Net income distribution:
The income-sharing ratio equal to their capital balances after admitting Campbell according to Partnership agreement:
Dennis Overton =130500/326250=40%
Ben Testerman=130500/326250=40%
Randy campbell=65250/326250=20%
These ratio can be multiplied by remaining income $81700 (126000-44300) to distribute the earnings to respective partner's capital accounts.
Withdrawals:
Half of the remaining income is distributed to the three partners.Dennis Overton need not take the salary allowance as a withdrawal but may allow it to accumulate in the member equity account.
Angel Investor Associates Statement of Partnership Equity For the year ended December 31,2016 Particulars Dennis Overton capital Ben Testerman capital Randy Campbell capital Total Partnership capital, Jan 1,2016 130500 130500 261000 Admission of randy campbell 65250 65250 Salary allowance 44300 44300 Remaining income 32680 32680 16340 81700 Less: Partner Withdrawals 38490 16340 8170 63000 Partnership capital, december 31,2016 168990 146840 8170 324000