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Ch. 13—Problems 13–16
PROBLEMS
PROBLEM 13-1
Allocation of $280,000 of Partnership Income
Cumulative
Rockford Skeeba Tapinski Total
Profit and loss percentage ................ 35% 25% 40%
Salary ................................................ $50,000 $40,000 $55,000 $145,000
Bonus based on sales ....................... 15,000 160,000
Note A: Calculation of Annual Bonus
Bonus When Income Is $280,000
Bonus = 30% (Net Income – Gain on Equipment Sale – Bonus)
Note B: Interest on Weighted-Average Capital, Rockford
Number
Amount of Months Weighted
Invested Invested Dollars
$75,000 5 $375,000
Interest on Weighted-Average Capital, Skeeba
Number
Amount of Months Weighted
Invested Invested Dollars
$125,000 6 $ 750,000
110,000
6
660,000
13–17 Ch. 13—Problems
Problem 13-1, Concluded
Interest on Weighted-Average Capital, Tapinski
Number
Amount of Months Weighted
Invested Invested Dollars
$40,000 3 $120,000
PROBLEM 13-2
Analysis of Sandburg’s capital account:
January 1, 2015, balance as of date of divorce .......... $ 180,000
Distributions to Sandburg:
June 30 ................................................................. $ (60,000)
September 30........................................................ (65,000) (125,000)
Distributions to Sandburg’s spouse:
February 28 (see Schedule B) ..............................
August 31 .............................................................. (40,000)
Allocation of partnership net income (see Schedule A) 397,414
December 31, 2015, balance ...................................... $ 412,414
Distributions to Sandburg:
Problem 13-2, Continued
Schedule A—Allocation of Partnership Profit
2015 Profits: Sandburg Williams Total
Salaries .............................................................. $100,000 $125,000 $225,000
Bonus (see Note A) ............................................ 68,182 68,182
Interest on capital (see Note B) .......................... 6,021 4,375 10,396
Subtotal .............................................................. $174,203 $129,375 $303,578
Note A: Calculation of 2015 Bonus Calculation of 2016 Bonus
Bonus = 10% ($750,000 – Bonus) Bonus = 10% ($700,000 – Bonus)
110% Bonus = 10% ($750,000) 110% Bonus = 10% ($700,000)
110% Bonus = $75,000 110% Bonus = $70,000
Problem 13-2, Concluded
2016 Weighted-Average Capital, Sandburg 2016 Weighted-Average Capital, Williams
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars Invested Invested Dollars
$412,414 2 $ 824,828 $357,586 6 $2,145,516
326,914 4 1,307,656 57,586 3 172,758
Schedule B—Distributions to Sandburg’s Spouse
In 2015, the first year of divorce, there was no February distribution.
In 2016, there is a February distribution, traceable to the prior year as follows:
Base earnings traceable to 2015:
Net income ............................................................... $ 750,000
Excluded salaries ..................................................... (200,000)
Excluded bonus (limited to $50,000) ........................ (50,000)
Total ......................................................................... $ 500,000
In 2017, there is a February distribution, traceable to the prior year as follows:
Base earnings traceable to 2016:
Net income ............................................................... $ 700,000
Excluded salaries ..................................................... (200,000)
Excluded bonus (limited to $50,000) ........................ (50,000)
Total ......................................................................... $ 450,000
Percent traceable to spouse .................................... × 25%
PROBLEM 13-3
Analysis of First Alternative
Cash flow components: March 31
2016
2017 2018 Total
Distribution of prior years’ income
(see Note A)........................................ $ 205,000 $ 205,000
Distribution of capital investment ............ 1,500,000 1,500,000
8% Return on proceeds (see Note B) ..... 136,400 147,312 283,712
Total ........................................................ $1,705,000 $136,400 $147,312 $1,988,712
Note A: Year 2015—Allocation of $550,000 of Partnership Income
Other Cumulative
Raymond Partners Total
Profit and loss percentage ........ 40% 60%
Salary ....................................... $125,000 $300,000 $425,000
Note B: Interest Amount
Year Rate Invested Return
2016 8.0% $1,705,000 $136,400
Analysis of Second Alternative
Cash flow components: March 31
2016
2017 2018 Total
Distribution of prior years’ income
(see Note A)....................................... $205,000 $104,000 $ 118,000 $ 427,000
Distribution of capital investment ............ — 1,700,000 1,700,000
13–21 Ch. 13—Problems
Problem 13-3, Concluded
Note A: Year 2016—Allocation of $605,000 of Partnership Income
Other Cumulative
Raymond Partners Total
Profit and loss percentage ........ 20% 80%
Salary ....................................... $ 80,000 $350,000 $430,000
Bonus = 10% (Net Income – Bonus)
110% Bonus = 10% × $605,000
Year 2017—Allocation of $682,000 of Partnership Income
Other Cumulative
Raymond Partners Total
Profit and loss percentage ........ 20% 80%
Salary ....................................... $ 80,000 $350,000 $430,000
Bonus = 10% (Net Income – Bonus)
110% Bonus = 10% × $682,000
Note B: Interest Amount
Year Rate Invested Return
2017 8.0 205,000 $16,400
PROBLEM 13-4
Allocation of profits for years 2 through 4
Cumulative
Year 2 Jacobs Levine Total
Salaries ........................................ $80,000 $110,000 $190,000
Bonus based on sales .................. — — 190,000
Other bonuses (see Note A) ........ 10,000 10,000 210,000
Cumulative
Year 3 Jacobs Levine Total
Salaries ........................................ $80,000 $110,000 $190,000
Bonus based on sales .................. 5,000 — 195,000
Other bonuses (see Note A) ........ 12,500 12,500 220,000
Cumulative
Year 4 Jacobs Levine Total
Salaries ........................................ $80,000 $110,000 $190,000
Bonus based on sales .................. 10,000 — 200,000
Other bonuses (see Note A) ........ 15,000 15,000 230,000
Note A: Calculation of Bonus
Year 2 Year 3
Bonus = 10% (Net Income – Bonus) Bonus = 10% (Net Income – Bonus)
110% Bonus = 10% (Net Income) 110% Bonus = 10% (Net Income)
Year 4
Bonus = 10% (Net Income – Bonus)
110% Bonus = 10% (Net Income)
Problem 13-4, Continued
Note A: Interest on Weighted-Average Capital
Year 2 Jacobs Levine
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars
Invested Invested Dollars
$100,000 3 $ 300,000 $80,000 3 $240,000
85,000 3 255,000 65,000 3 195,000
Year 3 Jacobs Levine
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars
Invested Invested Dollars
$166,000 3 $ 498,000 $174,000 3 $ 522,000
136,000 3 408,000 144,000 3 432,000
Year 4 Jacobs Levine
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars
Invested Invested Dollars
$170,600 3 $ 511,800 $204,400 3 $ 613,200
130,600 3 391,800 164,400 3 493,200
Problem 13-4, Concluded
Payments to Jacob’s ex spouse for years 3 through 5
Year 3 Year 4 Year 5
Monthly payment of $2,500 .................. $30,000 $ 30,000 $ 30,000
40% of the prior year salary ................. 32,000 32,000 32,000
Less monthly payments ....................... (30,000) (30,000) (30,000)
30% of excess distribution ................... — 786 10,202
PROBLEM 13-5
Allocation of current year profit
Cumulative
Meyers Lincoln Kopinski Total
Interest on capital (see Note A) ............ $ 2,490 $ 1,200 $ (300) $ 3,390
13–25 Ch. 13—Problems
Problem 13-5, Concluded
Note A: Interest on Weighted-Average Capital
Meyers Lincoln
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars
Invested Invested Dollars
$59,000 3 $177,000 $30,000 6 $180,000
44,000 3 132,000 10,000 6 60,000
Kopinski
Number of
Amount Months Weighted
Invested Invested Dollars
$25,000 6 $150,000
(35,000) 6 (210,000)
—
Note B: Bonus on excess gross billings
Meyers Lincoln Kopinski
Gross billings........................................ $500,000 $380,000 $450,000
Threshold billings ................................. 400,000 400,000 400,000
Determination of year end capital balances
Meyers Lincoln Kopinski
Beginning capital balance .................... $ 59,000 $ 30,000 $ 25,000
Withdrawal of salaries .......................... (120,000) (96,000) (72,000)
Drawings in excess of salaries ............. (25,000) (20,000) (60,000)
PROBLEM 13-6
Allocation of $330,000 of Partnership Income
Cumulative
Rivera Sampson Elliot Total
Profit and loss percentage ............................ 30% 30% 40%
Salary ............................................................ $80,000 $80,000 $100,000 $260,000
Bonus (see Note A) ....................................... — — 30,000 290,000
Interest on capital (see Note B):
10% interest on quarter 1 average ....... 1,250 1,250 3,750 296,250
10% interest on quarter 2 average ....... 1,000 625 3,000 300,875
Note A: Calculation of Annual Bonus
Bonus When Income Is $330,000
Bonus = 10% (Net Income – Bonus)
110% Bonus = 10% × $330,000
Note B: Determination of Interest on Capital
Quarter Component Rivera Sampson Elliott
1 Net capital beginning balance ....... $ 40,000 $ 50,000 $ 70,000
Draws ............................................ (30,000) (40,000) —
Profit allocation .............................. 40,000 40,000 40,000
Capital investment .........................
40,000
Total ............................................... $ 50,000 $ 50,000 $150,000
Weighted total (3/12 of a year) ...... $ 12,500 $ 12,500 $ 37,500
2 Beginning balance ......................... $ 50,000 $ 50,000 $150,000
Draws ............................................ (10,000) (25,000) (30,000)
Total ............................................... $ 40,000 $ 25,000 $120,000
PROBLEM 13-7
Amount to Be Paid to the Estate of Franklin
Average of last three years of allocated profit:
2013 allocated profit (as given) .............................................................. $190,000
2014 allocated profit (see Schedule A) .................................................. 134,150
2015 allocated profit (see Schedule A) .................................................. 118,195
Schedule A—Restatement and Allocation of Profits
2014
2015
Profit as reported by Franklin ......................................... $500,000 $480,000
Adjustments:
1. Adjust for fictitious sales ...................................... (25,000) (75,000)
2. Adjust for inventory pricing errors:
3. Adjust casualty insurance expense ..................... — 60,000
4. Adjust prepaid insurance balance:
5. Remove depreciation on equipment:
6. Remove cash sale ............................................... (42,000)
Adjusted profit ................................................................ $434,000 $376,700
Cumulative
2014 Allocation Wilson Watts Franklin Total
Profit and loss percentage ............................ 30% 35% 35%
Salaries ......................................................... $150,000 $150,000 $150,000 $450,000
Problem 13-7, Continued
Cumulative
2015 Allocation Wilson Watts Franklin Total
Profit and loss percentage ............................ 30% 35% 35%
Salaries ......................................................... $150,000 $150,000 $150,000 $450,000
Interest on capital (see Note A) .................... 8,500 3,500 (3,000) 459,000
Note A: Interest on Weighted-Average Capital, Wilson
2014 2015
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars Invested Invested Dollars
$300,000 3 $ 900,000 $100,000 3 $ 300,000
250,000 3 750,000 90,000 3 270,000
200,000 3 600,000 80,000 3 240,000
Interest on Weighted-Average Capital, Watts
2014 2015
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars
Invested Invested Dollars
$250,000 3 $ 750,000 $50,000 3 $150,000
200,000 3 600,000 40,000 3 120,000
13–29 Ch. 13—Problems
Problem 13-7, Concluded
Interest on Weighted-Average Capital, Franklin
2014 2015
Number of Number of
Amount Months Weighted Amount Months Weighted
Invested Invested Dollars
Invested Invested Dollars
$200,000 3 $ 600,000 $ — 3 $ —
150,000 3 450,000 (10,000) 3 (30,000)
Schedule B—Franklin's Corrected Capital Balance
Balance at year-end 2013 ......................... $200,000
2014 Profit allocation. ................................ 134,150
2014 Drawings ($50,000/quarter) .............. (200,000)
