Partnership income allocation
The partnership of Parker and Boone was formed and commenced operations on March 1, 2011, with Parker contributing $30,000 cash and Boone investing cash of $10,000 and equipment with an agreed upon valuation of $20,000. On July 1, 2011, Boone invested an additional $10,000 in the partnership. Parker made a capital withdrawal of $4,000 on May 2, 2011, but reinvested the $4,000 on October 1, 2011. During 2011, Parker withdrew $800 per month, and Boone, the managing partner, withdrew $1,000 per month. These drawings were charged to salary expense. A preclosing trial balance taken at December 31, 2011, is as follows:
|
Debit |
Credit |
|
|
Cash |
$ 9,000 |
|
|
Receivables—net |
15,000 |
|
|
Equipment—net |
50,000 |
|
|
Other assets |
19,000 |
|
|
Liabilities |
$ 17,000 |
|
|
Parker capital |
30,000 |
|
|
Boone capital |
40,000 |
|
|
Service revenue |
50,000 |
|
|
Supplies expense |
17,000 |
|
|
Utilities expense |
4,000 |
|
|
Salaries to partners |
18,000 |
|
|
Other miscellaneous expenses |
5,000 |
|
|
Total |
$137,000 |
$137,000 |
REQUIRED
1. Journalize the entries necessary to close the partnership books assuming that there is no agreement regarding profit distribution.
2. Prepare a statement of partnership capital assuming that the partnership agreement provides for monthly salary allowances of $800 and $1,000 for Parker and Boone, respectively, and for the division of remaining profits in relation to average capital balances.
3. Prepare a profit distribution schedule for the Parker and Boone partnership assuming monthly salary allowances of $800 and $1,000 for Parker and Boone, respectively; interest allowances at a 12 percent annual rate on average capital balances; and remaining profits divided equally.