Reference no: EM132365816
Question
Dave, Brian, and Paul are partners in a retail appliance store. The partnership was formed January 1, 2014, with each partner investing $48,600. They agreed that profits and losses are to be shared as follows:
1. Divided in the ratio of 40:30:30 if net income is not sufficient to cover salaries, bonus, and interest.
2. A net loss is to be allocated equally.
3. Net income is to be allocated as follows if net income is in excess of salaries, bonus, and interest.
(a) Monthly salary allowances are:
Dave$3,800
Brian2,600
Paul1,700
(b) Brian is to receive a bonus of 8% of net income before subtracting salaries and interest, but after subtracting the bonus.
(c) Interest of 10% is allocated based on the beginning-of-year capital balances.
(d) Any remainder is to be allocated equally.
Operating performance and other capital transactions were as follows.
Capital Transactions Net Income Dave Brian Paul
Year-End(Loss) Investment Withdrawals Investment Withdrawals Investment Withdrawals
12/31/14 $(5,400) $16,000 $15,600 $13,500 $6,500 $5,600 $3,100
12/31/15 24,700 -0- 15,600 -0- 6,500 5,600 3,100
12/31/16 129,600 -0- 17,600 -0- 8,500 5,600 3,100
All you need to know is how to calculate the 8% bonus.
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