Question

Ben Conway, Ida Chan, and Clair Scott formed CCS Consulting by making capital contributions of $254,000, $290,000, and $184,000, respectively. They anticipate annual profit of $436,800 and are considering the following alternative plans of sharing profits and losses: a. Equally, b. In the ratio of their initial Investments; or c. Salary allowances of $115,000 to Conway, $90,000 to Chan, and $65,000 to Scott and Interest allowances of 12% on initial Investments, with any remaining balance shared equally. Required: 1. Use the schedule to show how a profit of $436,800 would be distributed under each of the alternative plans being considered. (Enter all amounts as positive values.) Profit (Loss) Sharing Plan Calculations Share to Conway Share to Chan Share to Scott Total Profit Profit (b) Profit $ 436,800 0 S 0S Salary allowances Interest allowances Total salaries and interest allocations Balance of Profit Balance allocated equally Balance of Profit Shares of partners 0 S 0 $ 436.800 $ 436,800 2. Prepare a statement of changes in equity showing the allocation of profit to the partners, assuming they agree to use alternative (c) and the profit actually earned for the year ended December 31, 2020, Is $436.800. During the year, Conway, Chan, and Scott withdraw $45.000, $35,000, and $25,000, respectively. (Enter all amounts as positive values.) CCS Consulting Statement of Changes in Equity For Year Ended December 31, 2020 Conway Chan Scott Total Capital, January 1 Total Capital, December 31

Answer 1

1.

	Calculations	Conway	Chan	Scott	Total
a	Profit	$           1,45,600	$           1,45,600	$             1,45,600	$               4,36,800
b	Profit	$           1,52,400	$           1,74,000	$             1,10,400	$               4,36,800
c	Profit				$               4,36,800
	Salary Allowances	$           1,15,000	$              90,000	$                65,000	$               2,70,000
	Interest allowances	$              30,480	$              34,800	$                22,080	$                   87,360
	Total Salary and interest allocation	$           1,45,480	$           1,24,800	$                87,080	$               3,57,360
	Balance of Profit				$                   79,440
	Balance allocated equally	$              26,480	$              26,480	$                26,480	$                   79,440
	Balance of Profit				$                           -
	Shares of Partners	$          1,71,960	$           1,51,280	$            1,13,560	$               4,36,800

Working

	Calculations	Conway	Chan	Scott
a	Profit	=436800/3	=436800/3	=436800/3
b	Profit	=436800/728*254	=436800/728*290	=436800/728*184
c	Profit
	Salary Allowances
	Interest allowances	=254000*12%	=290000*12%	=184000*12%
	Total Salary and interest allocation
	Balance of Profit
	Balance allocated equally	=79440/3	=79440/3	=79440/3

	Conway	Chan	Scott	Total
Capital, January 1	$                       -	$                       -	$                         -	$                           -
Capital Contributions	$           2,54,000	$           2,90,000	$             1,84,000	$               7,28,000
Share of Partners	$           1,71,960	$           1,51,280	$             1,13,560	$               4,36,800
Total	$           4,25,960	$           4,41,280	$             2,97,560	$             11,64,800
Withdrawls	$              45,000	$              35,000	$                25,000	$               1,05,000
Capital, December 1	$          3,80,960	$           4,06,280	$            2,72,560	$             10,59,800

Account Titles	Debit	Credit
Income Summary	$           4,36,800
Conway, Capital		$           1,71,960
Chan, Capital		$           1,51,280
Scott, Capital		$           1,13,560
(To close income summary)
Conway, Capital	$              45,000
Chan, Capital	$              35,000
Scott, Capital	$              25,000
Conway, Withdrawls		$              45,000
Chan, Withdrawls		$              35,000
Scott, Withdrawls		$              25,000
(To close withdrawl accounts)