Partnership income allocation—Profit sharing based on beginning, ending, and average capital balances
A summary of changes in the capital accounts of the Katie, Lynda, and Molly partnership for 2011, before closing partnership net income to the capital accounts, is as follows:
|
Katie Capital |
Lynda Capital |
Molly Capital |
Total Capital |
|
|
Balance January 1, 2011 |
$80,000 |
$80,000 |
$90,000 |
$250,000 |
|
Investment April 1 |
20,000 |
20,000 |
||
|
Withdrawal May 1 |
(15,000) |
(15,000) |
||
|
Withdrawal July 1 |
(10,000) |
(10,000) |
||
|
Withdrawal September 1 |
(30,000 ) |
(30,000 ) |
||
|
$90,000 |
$65,000 |
$60,000 |
$215,000 |
REQUIRED: Determine the allocation of the 2011 net income to the partners under each of the following sets of independent assumptions:
1. Partnership net income is $60,000, and profit is divided on the basis of average capital balances during the year.
2. Partnership net income is $50,000, Katie gets a bonus of 10% of income for managing the business, and the remaining profits are divided on the basis of beginning capital balances.
3. Partnership net loss is $35,000, Molly receives a $12,000 salary, each partner is allowed 10% interest on beginning capital balances, and the remaining profits are divided equally.