The partnership of Angel Investor Associates began operations on January 1, 2014, with contributions from two partners as follows

The partnership of Angel Investor Associates began operations on January 1, 2014, with contributions from two partners as follows:

Dennis Overton $180,000
Ben Testerman 120,000

The following additional partner transactions took place during the year:

1. In early January, Randy Campbell is admitted to the partnership by contributing $75,000 cash for a 20% interest.
2. Net income of $150,000 was earned in 2014. In addition, Dennis Overton received a salary allowance of $40,000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting Campbell.
3. The partners’ withdrawals are equal to half of the increase in their capital balances from salary allowance and income.

Prepare a statement of partnership equity for the year ended December 31, 2014.


Answer:































ANGEL INVESTOR ASSOCIATES
Statement of Partnership Equity
For the Year Ended December 31, 2014
Dennis
Overton,
Capital
Ben
Testerman,
Capital
Randy
Campbell,
Capital
Total
Partnership
Capital
Partnership capital,
January 1, 2014 $180,000 $120,000 $300,000
Admission of Randy Campbell — — $ 75,000 75,000
Salary allowance 40,000 40,000
Remaining income 52,800 35,200 22,000 110,000
Less: Partner withdrawals (46,400)
1 (17,600)2 (11,000)3 (75,000)
Partnership capital,
December 31, 2014 $226,400 $137,600 $ 86,000 $450,000
1 ($52,800 + $40,000) ÷ 2
2 $35,200 ÷ 2
3 $22,000 ÷ 2
Admission of Randy Campbell:
Equity of initial partners prior to admission……………………… $300,000
Contribution by Campbell…………………………………………… 75,000
Total……………………………………………………………………… $375,000
Campbell’s equity interest after admission…………………… × 20%
Campbell’s equity after admission………………………………… $ 75,000
Contribution by Campbell…………………………………………… 75,000
Bonus…………………………………………………………………… $ 0
Net income distribution:
The income-sharing ratio is equal to the proportion of the capital balances
after admitting Campbell according to the partnership agreement:
$180,000
Dennis Overton:
Ben Testerman:
Randy Campbell:
$375,000
$120,000
$375,000
$75,000
$375,000
= 48%
= 32%
= 20%
These ratios can be multiplied by the $110,000 remaining income after the
salary allowance to Overton ($150,000 – $40,000). These amounts are credited to
the respective partner capital accounts. For example, Dennis Overton: $52,800 =
$110,000 × 48%.


Withdrawals:
Half of the remaining income is distributed to the three partners. Overton need not take the salary allowance as a withdrawal but may allow it to accumulate in the member equity account. He is taking half of the allowance as a withdrawal.