Question

Please show where the numbers came from in the answers. The answers are: a) 29000 b) 246,000 c) 201,000 d) 70,040 e) 304,040 f) 34,420 g) 139,420 h) 75,540 i)264,540 Gael, Garcia, and Bernal formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Garcia, and (3) sharing the remainder of the income or loss in a ratio of 20% for Gael, and 40 % each for Garcia and Bernal. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. a.) What is Gael's total share of net income for 2012? b.) What is Bernal's capital balance at the end of 2012? What is Garcia's capital balance at the end of 2012? c.) d.) What is Bernal's total share of net income for 2013? e.) What is Bernal's capital balance at the end of 2013? f.) What is Gael's total share of net income for 2013? What is Gael's capital balance at the end of 2013? &) What is Garcia's total share of net income for 2013? h.) i.) What is Garcia's capital balance at the end of 2013?

Answer 1

Solution Step 1: Allocation of Net income for the year 2012 amongst the Partners Gael Garcia Bernal $ 10,000 $20,000 $15,000 $10,000 $25,000 Total $150,000 $45,000 $10,000 $55,000 $95,000 $95,000 $0 $10,000 (a) Net Income for 2012 (b) Interest allowances (WN-1) (c) Annual compensation (d) Total annual compensation and interest (b + c) (e) Balance of income (a-d) (f) Balance allocated in the ratio of (20:40:40) (g) Balance of income (e-f) (h) Total Shares of the partners (d + f) $20,000 $19,000 $38,000 $38,000 $29,000 $63,000 $58,000 WN-1: Calculation of interest allowance Beginning Capital balance Interest allowance (10%) Gael $100,000 $10,000 Garcia $150,000 $15,000 Bernal $200,000 $20,000 Step 2: Computation of ending balances of capital account of partners at December 31, 2012 (a) Initial Capital invested January 1, 2012 (b) Add: Shares in net income (Step-1) | (c) Less: Annual drawings ($1,000 x 12) (d) Ending balance, December 31, 2012 Gael $100,000 $29,000 ($12,000) $117,000 Garcia $150,000 $63,000 ($12,000) $201,000 Bernal $200,000 $58,000 ($12,000) $246,000 Step 3: Allocation of Net income for the year 2013 amongst the Partners Gael Garcia Bernal $11,700 $24,600 $20,100 $10,000 $30,100 Total $180,000 $56,400 $10,000 $66,400 $113,600 $113,600 $0 | (a) Net Income for 2013 (b) Interest allowances (WN-2) (c) Annual compensation (d) Total annual compensation and interest (b + c) (e) Balance of income (a -d) (f) Balance allocated in the ratio of (20:40:40) (g) Balance of income (e-f) (h) Total Shares of the partners (d+f) $24,600 L $22,720 $45,440 $45,440 $34,420 $75,540 $70,040

WN-2: Calculation of interest allowance | Beginning Capital balance Interest allowance (10%) Gael $117,000 $11,700 Garcia $201,000 $20,100 Bernal $246,000 $24,600 Step 4: Computation of ending balances of capital account of partners at December 31, 2013 (a) Initial Capital invested January 1, 2013 (b) Add: Shares in net income (Step-3) (c) Less: Annual drawings ($1,000 x 12) (d) Ending balance, December 31, 2013 Gael $117,000 $34,420 ($12,000) $139,420 Garcia $201,000 $75,540 ($12,000) $264,540 Bernal $246,000 $70,040 ($12,000) $304,040 Final answers a.) Gael's total share of net income for 2012 b.) Bernal's capital balance at the end of 2012 c.) Garcia's capital balance at the end of 2012 d.) Bernal's total share of net income for 2013 e.) Bernal's capital balance at the end of 2013 | $29,000 (see step 1) $246,000 (see step 2) $201,000 (see step 2) $70,040 (see step 3) $304,040 (see step 4) $34,420 (see step 3) $139,420 (see step 4) $75,540 (see step 3) $264,540 (see step 4) f.) Gael's total share of net income for 2013 g.) h.) Gael's capital balance at the end of 2013 Garcia's total share of net income for 2013 i.) Garcia's capital balance at the end of 2013