Reference no: EM132462751
Problem - On January 1, 2018, a partnership is formed between two divorce lawyers who have, for a number of years, practiced individually. Each partner contributes $70,500.
During 2018, each partner is allocated a salary of $125,000, as well as interest on their beginning of the year capital balances at an annual rate of 5 percent. These amounts are withdrawn during the year. Any Net Business Income that remains after the priority allocations for salaries and interest will be split 50:50 by the two partners.
For the year ending December 31, 2018, their bookkeeper has prepared the following financial statements for the partnership. No amortization was deducted in preparing these statements.
Perfect Separation Unlimited Balance Sheet As At December 31, 2018
Cash $45,189
Accounts Receivable 186,485
Work in Progress 212,814
Furniture and Fixtures 56,581
Computer Hardware (at cost) 17,608
Computer Applications Software (at cost) 13,440
Total Assets $532,117
Account Payable $88,872
Initial Partner Capital 141,000
Income For The Period 302,245
Total Equities $532,117
Perfect Separation Unlimited Income Statement For The Year Ending December 31, 2018
Revenues $682,800
Meals and Entertainment $23,330
Office Supplies 12,381
Partners' Salaries 250,000
Interest on Capital Contributions 7,050
Rent 46,640
Salaries 39,545
Total Expenses $378,946
Income For The Period (Accounting Values) $303,854
The work in progress represents work done by the lawyers at their standard charge rate that has not been billed to clients at the year end. No election has been made to exclude any portion of work in progress.
Required - For each partner, calculate the adjusted cost base of his partnership interest at December 31, 2018 and January 1, 2019. Your answers should ignore GST and PST considerations.
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