Summers and Winters Formed a Partnership on December 31,2009

question 108

Essay

Summers and Winters formed a partnership on December 31,2009.Summers contributed $90,000 cash and equipment with a market value of $60,000.Winters' investment consisted of: cash,$30,000; inventory,$20,000; all at market values.Partnership net income for 2010 and 2009 was $75,000 and $120,000,respectively.
Determine each partner's share of the net income for each year,assuming each of the following independent situations:
(a)Income is divided based on the partners' failure to sign an agreement.
(b)Income is divided based on a 2:1 ratio (Summers: Winters).
(c)Income is divided based on the ratio of the partners' original capital investments.
(d)Income is divided based on partners allowed 12% of the original capital investments,with salaries to Summers of $30,000 and Winters of $25,000 and the remainder to be divided equally.
Prepare the journal entry to record the allocation of the 2010 income under alternative (d)above.

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Definitions:

Maximizing Profits

The process of adjusting production and sales strategies to generate the highest possible profit from business activities.

Economic Profit

The gap measured between comprehensive earnings and widespread costs, including both evident and implicit fees.

Fixed Costs

Costs that do not change with the level of output produced by a firm, such as rent, salaries, and insurance.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical.