Reference no: EM131624941

Problem 1. On January 1, 2016, Betty, Candice, and Frank had capital balances of 50,000; 105,000; and 19,000 in their partnership. In 2016, the partnership reported net income of $41,000. None of the partners withdrew any assets in 2016. The partnership agreed to share profits and losses as follows:

A. A monthly salary allowance of 2100; 26,000; and 4100 to Betty, Candice, and Frank.

B. An annual interst allowance of 11% to each partner based on her/his capital balance at the beginning of the year.

C. Any remaining balance to be shared equally.

Required:

1. Prepare a schedule to allocate the 2016 net income to partners.

2. Assume all the income statement accounts for 2016 have been closed to the income summary account. Prepare the entry to record the division of the 2016 net income.

Problem 2. Bob and Dan have decided to establish a partnership. Bob contributes $51,000 in cash, Dan contributes 101,000 cash. They are evaluating two plans for a profit and loss sharing agreement:

Plan A: Bob to receive a salary of 16,000 annually, the balance to be divided between Bob and Dan according to their opening capital balance ratios.

Plan B. Bob to receive a salary of 13,000 annually. Bob and Dan to receive 10% interest per year on their opening capital balances, and the balance of profit or loss to be split equally.

Required:

1. Calculate the division und each plan in the following schedule, assuming A: a profit of 65,000 per year and B. a loss of 30,000 per year.

2. Comment on the pros and cons of each plan.