Question

On January 1, 2020, Suzy and Bobby form a partnership. Suzy contributes $70,000 and Bobby contributes $40,000. The partnership earned $181,000 of revenues and incurred $187,000 of expenses during its first year of operations. Bobby withdrew $10,000 and Suzy $12,000 during the year. Income is shared by allocating 8% interest on initial capital contributed, salary allowances of $20,000 to Suzy, and $15,000 to Bobby, and the remainder shared 5:2.

Calculate the TOTAL income/(loss) to be allocated to Suzy and to Bobby. You must show the calculation of each component involved in the computation of the total amount of income/(loss) to be allocated to each partner.

Answer 1

Suzy and Bobby Partnership

The total loss to be allocated to Suzy and Bobby is:

= $49,800.

Step-by-step explanation:

a) Data and Calculations:

Capital contributions:

Suzy = $70,000

Bobby = $40,000

Revenue earned = $181,000

Expenses incurred 187,000

Net loss = $6,000

Drawings by partners:

Bobby = $10,000

Suzy = $12,000

Profit sharing:

Suzy Bobby Total Profit

Interest on capital $5,600 $3,200 ($8,800)

Salary allowance 20,000 15,000 (35,000)

Net loss 4,286 1,714 (6,000)

Total loss for each $29,886 $19,914 $49,800

Net Loss:

Suzy = 5/7 * $6,000 = $4,286

Bobby = 2/7 * $6,000 = $1,714

Total net loss = $6,000

Interest on capital:

Suzy = 8% * $70,000 = $5,600

Bobby = 8% * $40,000 = $3,200