Distribution of Partnership Income and P r eparation of a Statement of Partners’ Capital The

Distribution of Partnership Income and P r eparation of a Statement of

Partners’ Capital

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

follows:

APPLE-JACK P A R TNERSHIP Income Statement

For the Y ear Ended December 31, 20X5

Net Sales	$300,000
Cost of Goods Sold	(190,000)
Gross Margin	$110,000
Operating Expenses	(30,000)
Net Income	$ 80,000

Additional Information for 20X5

1. Apple began the year with a capital balance of $40,800.

2. Jack began the year with a capital balance of $112,000.

3. On April 1, Apple invested an additional $15,000 into the partnership.

4. On August 1, Jack invested an additional $20,000 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 h a v e agreed to distri b ute partnership net income according to the foll o wing plan:}

	Apple	Jack
1. Interest on average capital balances 2. Bonus on net income before the bonus but after interest on	6%	6%
average capital balances	10%
3. Salaries	$25,000	$30,000
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. Show supporting computations in good form. Round to the nearest dollar.

b . Prepare the statement of partners’ capital at December 31, 20X5.

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 $30,000 to Apple and $35,000 to Jack?