Reference no: EM131807972
Question - Partnerships
Net income for Levin-Tom partnership for 2012 was $125,000. Levin and Tom have agreed to distribute partnership net income according to the following plan:
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Levin
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Tom
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|
Interest on average capital balances
|
7%
|
7%
|
|
Bonus on net income before the bonus but after interest on average capital balances
|
12%
|
|
|
Salaries
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$40,000
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$50,000
|
|
Residual (if positive)
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60%
|
40%
|
|
Residual (if negative)
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50%
|
50%
|
Additional Information for 2012 follows:
1. Levin began the year with a capital balance of $75,000.
2. Torn began the year with a capital balance of $100,000.
3. On March 1, Levin invested an additional $25,000 into the partnership.
4. On October 1, Tom invested an additional $20,000 into the partnership.
5. Throughout 2012, each partner withdrew $200 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.
Required:
a. Prepare a schedule that discloses the distribution of partnership net income for 2012. Show supporting computations in good form.
b. Prepare the statement of partners' capital at December 31, 2012.
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 $45,000 to Levin and $60,000 to Jack?