29.

(Allocate income and prepare a statement of partners' capital)

a. Income Allocation2011
Gray
Salary allowance ($8 per billable
hour)
$13,680
Interest (see Note A)
25,928
Bonus (not applicable because
salary and interest would
necessitate a negative bonus)
-0Remaining loss (split evenly):
$ 65,000
(35,600)
(58,328)
$(28,928)
(9,643)
Profit allocation

$29,965

Stone

Lawson

Totals

$11,520
21,600

$10,400
10,800

$35,600
58,328

-0-

-0-

-0-

(9,643)
$23,477

(9,642)
$11,558

(28,928)
$65,000

Note A: Interest for Stone and Lawson is calculated at 12% of their beginning
capital balances ($180,000 and $90,000, respectively) while for Gray the
computation is based on a $210,000 balance for 4/12 of the year and $219,100
for the remaining 8/12.
Capital Account Balances1/1/11 12/31/11

Beginning contributions
Added Investment
Profit allocation (from above)
Drawing (10% of beginning
balances)
Ending balances

Gray
$210,000
9,100
29,965

Stone
$180,000
-023,477

Lawson
$90,000
-011,558

Totals
$480,000
9,100
65,000

(21,000)
$228,065

(18,000)
$185,477

(9,000)
$92,558

(48,000)
$506,100

Prior to developing the information for 2012, a computation of Monet's

investment must be made:
Monet's Investment = 25% ($506,100 + Monet's Investment)
Ml = $126,525 + .25 Ml
.75 Ml = $126,525
Ml = $168,700

Income Allocation2012
Gray
Salary allowance ($8
per billable hour) $14,400
Interest (12% of beginning capital balances
for the year)
27,368
Bonus (not applicable)
-0Remaining loss (split
evenly):
$ (20,400)
(46,960)
(80,976)
$(148,336)
(37,084)
Loss allocation
$ 4,684

Stone

Lawson

Monet

Totals

$ 12,000

$ 11,040

$ 9,520

$ 46,960

22,257
-0-

11,107
-0-

20,244
-0-

80,976
-0-

(37,084)
$(2,827)

(37,084)
$(14,937)

(37,084)
$ (7,320)

(148,336)
$(20,400)

Capital Account Balances 1/1/12 12/31/12

Gray
Stone
Beginning balances $228,065
$185,477
Loss allocation (from
above)
4,684
(2,827)
Drawings (10% of
beginning
balances)
(22,806)
(18,548)
Ending balances $209,943
$164,102
Income Allocation2013
Gray
Salary allowance ($8
per billable hour) $15,040
Interest (12% of
beginning capital
balances for the
year)
25,193
Bonus (see Note B)
2,604
Remaining profit split
evenly:
$152,800
(51,120)
(70,430)
(5,208)
$ 26,042
6,510
Profit allocation
$49,347

Lawson
$92,558

Monet
$168,700

Totals
$674,800

(14,937)

(7,320)

(20,400)

(9,256)
$68,365

(16,870)
$144,510

(67,480)
$586,920

Stone

Lawson

Monet

Totals

$12,960

$10,480

$12,640

$ 51,120

19,692
2,604

8,204
-0-

17,341
-0-

70,430
5,208

6,510
$41,766

6,511
$25,195

6,511
$36,492

26,042
$152,800

Note B: The bonus to Gray and Stone can only be derived algebraically. Since
each of the two partners is entitled to 10% of net income as defined, the total
bonus is 20% and can be computed as follows:
Bonus = 20% (Net income Salary Interest Bonus)
B = .2 ($152,800 $51,120 $70,430 B)
B = .2 ($31,250 B)
B = $6,250 .2B
1.2 B = $6,250
B = $5,208 (or $2,604 per person)
Capital Account Balances 1/1/13 12/31/13
Gray
Stone
Beginning balances $209,943 $164,102
Profit allocation (from
above)
49,347
41,766
Drawings (10% of
beginning
balances)
(20,994) (16,410)
Ending balances
$238,296 $189,458

Lawson
$68,365

Monet
$144,510

Totals
$586,920

25,195

36,492

152,800

(6,837)
$86,723

(14,451)
$166,551

(58,692)
$681,028

Lawson
$90,000
-011,558
(9,000)
$92,558

Totals
$480,000
9,100
65,000
(48,000)
$506,100

b.
GRAY, STONE, AND LAWSON
Statement of Partners' Capital
For Year Ending December 31, 2011

Beginning balances
Added Investment
Profit allocation
Drawings
Ending balances

Gray
$210,000
9,100
29,965
(21,000)
$228,065

Stone
$180,000
-023,477
(18,000)
$185,477