12 - 1

Allocation on Stated Ratios In the partnership agreement, Zayn is to receive

2/3 and Perez 1/3 of partnership income or loss. If the partnership income is $60,000, we will allocate the income to partners as follows:

$60,000 × 2/3$60,000 × 2/3 = $40,000= $40,000

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12 - 2

Allocation on Capital Balances In their partnership agreement, Zayn and Perez agree In their partnership agreement, Zayn and Perez agree

to allocate profits and losses on the basis of their to allocate profits and losses on the basis of their beginning capital balances.beginning capital balances.

Balance Ratio Income AllocationK. Zayn, Capital 30,000$ 75% 60,000$ 45,000$ H. Perez, Capital 10,000 25% 60,000 15,000 Totals 40,000$ 100% 60,000$

Dec 31 Income Summary 60,000 K. Zayn, Capital 45,000 H. Perez, Capital 15,000

To allocate income to partner's capital.

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12 - 3

Allocation on Services, Capital, and Stated Ratios

Zayn and Perez have a partnership agreement Zayn and Perez have a partnership agreement with the following conditions:with the following conditions:

1.1.Zayn receives a $36,000 annual salary Zayn receives a $36,000 annual salary allowance and Perez receives an allowance of allowance and Perez receives an allowance of $24,000. $24,000.

2.2.Each partner is allowed an annual interest Each partner is allowed an annual interest allowance of 10% on their beginning capital allowance of 10% on their beginning capital balance.balance.

3.3.Any remaining balance of income or loss is Any remaining balance of income or loss is allocated equally.allocated equally.

Net income is Net income is $70,000$70,000..

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Zayn Perez Remainder70,000$

36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -

42,000 28,000 Income to each partner

Net income

Income Allocation

SalariesInterestEqual allocation

Zayn Perez Remainder70,000$

36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -

42,000 28,000 Income to each partner

Net income

Income Allocation

SalariesInterestEqual allocation

Allocation on Services, Capital, and Stated Ratios

Zayn Perez Remainder70,000$

36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -

42,000 28,000 Income to each partner

Net income

Income Allocation

SalariesInterestEqual allocation

Zayn Perez Remainder70,000$

36,000$ 24,000$ 10,000 3,000 1,000 6,000 3,000 3,000 -

42,000 28,000

InterestEqual allocationIncome to each partner

Net income

Income Allocation

Salaries

$30,000 × 10% = $3,000

$6,000 × ½ = $3,000

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12 - 5

Zayn Perez Remainder50,000$

36,000$ 24,000$ (10,000) 3,000 1,000 (14,000) 3,000 3,000 (20,000)

42,000 28,000

InterestEqual allocationIncome to each partner

Net income

Income Allocation

Salaries

Zayn Perez Remainder50,000$

36,000$ 24,000$ (10,000) 3,000 1,000 (14,000) 3,000 3,000 (20,000)

42,000 28,000

InterestEqual allocationIncome to each partner

Net income

Income Allocation

Salaries

Allocation on Services, Capital, and Stated Ratios

Zayn Perez Remainder50,000$

36,000$ 24,000$ (10,000) 3,000 1,000 (14,000) 3,000 3,000 (20,000)

42,000 28,000

InterestEqual allocationIncome to each partner

Net income

Income Allocation

Salaries

Zayn Perez Remainder50,000$

36,000$ 24,000$ (10,000) 3,000 1,000 (14,000)

(7,000) (7,000) - 32,000 18,000 Income to each partner

Net income

Income Allocation

SalariesInterestEqual allocation

($14,000) × ½ = ($7,000)

Now let’s assume that net income is only $50,000.

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12 - 6

Partnership Financial Statements

TotalBeginning capital balances -$ -$ -$ Investments by owners 30,000 10,000 40,000 Net income Salary allowances 36,000$ 24,000$ Interest allowances 3,000 1,000 Balance allocated 3,000 3,000 Total net income 42,000 28,000 70,000 Less partners' withdrawals (20,000) (12,000) (32,000) Ending capital balances 52,000$ 26,000$ 78,000$

Zayn Perez

BOARDSStatement of Partners' Equity

For the Year Ended December 31, 2011

During 2009, Zayn withdrew $20,000 cash from the partnership and Perez withdrew $12,000. Net income for the year is $70,000.

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