Division of Income
Champion Play Company is a partnership that sells sporting goods. The partnership agreement
provides for XXXXXXXXXXpercent interest on invested capital, salaries of $24,000 to Luc and $28,000 to
Dennis, and a bonus for Luc. The 20X3 capital accounts were as follows:
Luc, Capital
Dennis, Capital
| 8/1 XXXXXXXXXX15,000 | 1/1 | 50,000 | | 7/1 XXXXXXXXXX10,000 | 1/1 XXXXXXXXXX70,000 |
| | 4/1 | 5,000 | | | 9/1 XXXXXXXXXX22,500 |
Required
For each of the following independent situations, prepare an income distribution schedule.
a. Interest is based on weighted-average capital balances. The 5 percent bonus is calculated on net income after deducting the bonus. In 20X3, net income was $64,260. Any remainder is divided between Luc and Dennis in a 3:2 ratio, respectively.
b . Interest is based on ending capital balances after deducting salaries, which the partners nor- mally withdraw during the year. The 8 percent bonus is calculated on net income after deduct- ing the bonus and salaries. Net income was $108,700. Any remainder is divided equally.
c. Interest is based on beginning capital balances. The XXXXXXXXXXpercent bonus is calculated on net income after deducting the bonus. Net income was $76,950. Any remainder is divided between Luc and Dennis in a 4:2 ratio, respectively.