Question

C. Eastwood, A. North, and M. West are manufacturers’ representatives in the architecture business. Their capital accounts in the ENW partnership for 20X1 were as follows:

C. Eastwood, Capital
9/1	9,700	1/1	31,100
		5/1	6,900

A. North, Capital
3/1	9,700	1/1	40,300
		7/1	5,800
		9/1	5,000

M. West, Capital
8/1	13,200	1/1	50,300
		4/1	8,700
		6/1	3,900

Required:
For each of the following independent income-sharing agreements, prepare an income distribution schedule.

a. Salaries are $16,700 to Eastwood, $21,000 to North, and $18,300 to West. Eastwood receives a bonus of 5 percent of net income after deducting his bonus. Interest is 10 percent of ending capital balances. Eastwood, North, and West divide any remainder in a 3:3:4 ratio, respectively. Net income was $81,480. (Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.)

	Eastwood North West Total Profit ratio 3 3 4 10 Ending capital Net income Salary 0 Bonus 0 Interest on ending capital balance 0 Residual income (deficit) $0 Allocate 0 Total $0 $0 $0 $0

b. Interest is 10 percent of weighted-average capital balances. Salaries are $25,200 to Eastwood, $22,200 to North, and $25,900 to West. North receives a bonus of 10 percent of net income after deducting the bonus and her salary. Any remainder is divided equally. Net income was $70,270. (Do not round intermediate calculations. Round the final answers to nearest whole dollar. Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.)

	Eastwood North West Total Profit ratio 0 Average capital Net income Interest on average capital balance 0 Salary 0 Bonus 0 Residual income (deficit) $0 Allocate 0 Total $0 $0 $0 $0

c. West receives a bonus of 20 percent of net income after deducting the bonus and the salaries. Salaries are $21,900 to Eastwood, $18,500 to North, and $15,200 to West. Interest is 10 percent of beginning capital balances. Eastwood, North, and West divide any remainder in an 8:7:5 ratio, respectively. Net income was $94,780. (Do not round intermediate calculations. Amounts that are to be deducted from an individual partner's capital balance should be entered with a minus sign.)

	Eastwood North West Total Profit ratio 0 Beginning capital Net income Bonus 0 Salary 0 Interest on beginning capital balance 0 Residual income (deficit) $0 Allocate 0 Total $0 $0 $0 $0

Answer 1

WN for B
1	Distribution of Net Income
	Calculation of Average Capital Employed for Eastwood
	Date	Dr	Cr	Balance	Month Maintained	Months * Balance
	1/1			31100	4	124400
	5/1		6900	38000	4	152000
	9/1	9700		28300	4	113200
					12	389600
	Average Capital		389600/12		32466.67
2	Calculation of Average Capital Employed for North
	Date	Dr	Cr	Balance	Month Maintained	Months * Balance
	1/1			40300	2	80600
	3/1		5800	46100	4	184400
	7/1		5000	51100	2	102200
	9/1	9700		41400	4	165600
					12	532800
	Average Capital		532800/12		44400
3	Calculation of Average Capital Employed for M West
	Date	Dr	Cr	Balance	Month Maintained	Months * Balance
	1/1			50300	3	150900
	4/1		8700	59000	2	118000
	6/1		3900	62900	2	125800
	8/1	13200		49700	5	248500
					12	643200
	Average Capital		643200/12		53600
a	Schedule
		Eastwood	North	West	Total
	Profit Ratio	3	3	4
	Ending Ratio	28300	41400	49700
	Net income				81480
	Salary	16700	21000	18300	-56000
	Bonus-5/105*81480	3880	0	0	-3880
	Interest on Ending Capital Balance-10%	2830	4140	4970	-11940
	Residual Income(Deficit)				9660
	Allocate	2898	2898	3864	-9660
	Total	26308	28038	27134	0
b	Schedule showing allocation
		Eastwood	North	West	Total
	Profit Ratio	1	1	1	3	Calculation of Bonus
	Average Capital	32467	44400	53600		Bonus	10%(NI-Bonus-North Salary)
	Net income				70270	Bonus	10%(70270-Bonus-22200)
	Interest on average capital balance-10%	3247	4440	5360	-13047	Bonus	7027-.1Bonus-2220
	Salary	25200	22200	25900	-73300	1.1 Bonus	4807
	Bonus		4307		-4307	Bonus	4807/1.1
	Residual Income(Deficit)				-20384		4307
	Allocate	-6795	-6794	-6795	20384
	Total	21652	24153	24465	0
c	Distribution of the Net income of $94780
		Eastwood	North	West	Total
	Profit Ratio	8	7	5	20
	Beginning Capital	31100	40300	50300
	Net income				94780
	Bonus			-7235	-7235	Calculation of Bonus
	Salary	21900	18500	15200	-55600	Bonus	10%(NI-Bonus-West Salary)
	Interest on Beg capital-10%	3110	4030	5030	-12170	Bonus	10%(94780-Bonus-15200)
	Residual Income(Deficit)				19775	Bonus	9478-.1 Bonus-1520
	Allocate	7910	6921.25	4943.75	-19775	1.1 Bonus	7958
	Total	32920	29451.25	25173.75	0	Bonus	7958/1.1
							7235