Question

The income statement for the Apple-Jack Partnership for the year ended December 31, 20X5, follows:

APPLE-JACK PARTNERSHIP Income Statement For the Year Ended December 31, 20X5
Net Sales	$	304,000
Cost of Goods Sold		(197,000	)
Gross Margin	$	107,000
Operating Expenses		(31,000	)
Net Income	$	76,000

Additional Information for 20X5

1.	Apple began the year with a capital balance of $47,700.
2.	Jack began the year with a capital balance of $122,000.
3.	On April 1, Apple invested an additional $21,600 into the partnership.
4.	On August 1, Jack invested an additional $24,000 into the partnership.
5.	Throughout 20X5, each partner withdrew $400 per week in anticipation of partnership net income. The partners agreed that these withdrawals are not to be included in the computation of average capital balances for purposes of income distributions.

Apple and Jack have agreed to distribute partnership net income according to the following plan:

		Apple			Jack
1.	Interest on average capital balances		6	%		6	%
2.	Bonus on net income before the bonus but after interest on average capital balances		10	%
3.	Salaries	$	17,000		$	19,000
4.	Residual (if positive)		70	%		30	%
	Residual (if negative)		50	%		50	%

Required:

a.	Prepare a schedule that discloses the distribution of partnership net income for 20X5. (Do not round intermediate calculations. Round your final answers to nearest whole dollar. Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.)

     

b.	Prepare the statement of partners’ capital at December 31, 20X5. (Do not round intermediate calculations. Round your final answers to nearest whole dollar. Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.)

      

c.

How would your answer to part a change if all of the provisions of the income distribution plan were the same except that the salaries were $36,000 to Apple and $24,181 to Jack? (Do not round intermediate calculations. Round your final answers to nearest whole dollar. Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.)

Answer 1

a.

Schedule of distribution of partnership net income
Details	Total	Apple	Jack
Net income	76000
Interest on capitals *	-11754	3834	7920
Balance available	64246
Bonus 10%	-6425	6425
Balance available	57821
Salaries	-36000	17000	19000
Balance available	21821
final ditribution(70:30)	-21821	15275	6546
Total	0	42534	33466

Working:

Date	Apple			Jack
	Amount	Weight	Weighted average	Amount	Weight	Weighted average
							1/1/20X5	47700	12/12	47700	122000	12/12	122000
4/1/20X5	21600	9/12	16200
8/1/20X5				24000	5/12	10000
Average Capitals			63900			132000
Interest @6%   *			3834			7920

b.

Statement of partners' capital
Details	Jack	Apple
Balances , January 1, 20X5	47700	122000
Investment during the year	21600	24000
	69300	146000
Withdrawals during the year	-20800	-20800
($400 x 52 weeks)
Balances before distribution	48500	125200
Distribution of net income	42534	33466
Balances, December 31, 20X5	91034	158666

c.

Schedule of distribution of partnership net income
Details	Total	Apple	Jack
Net income	76000
Interest on capitals	-11754	3834	7920
Balance available	64246
Bonus 10%	-6425	6425
Balance available	57821
Salaries	-60181	36000	24181
Balance available	-2360
final ditribution(50:50)	2360	-1652	-708
Total	0	44607	31393