Olsen and Katch organized the OK Partnership on 1/1/01. The following entries were made into their capital accounts during 01:
The partnership agreement called for the following in the allocation of partnership profits and losses:
Salaries of $48,000 and $36,000 would be allocated to Olsen and Katch, respectively
Interest of 8% on average capital balances will be allocated
Katch will receive a bonus of 10% on all partnership billings in excess of $300,000
Any remaining profits/losses will be allocated 60/40 to Olsen and Katch, respectively.
Required (account for each situation independently):
a.
Determine the distribution of partnership net income. Assume the following priority of allocation: interest, bonus, salaries, then remaining assuming partnership income of $85,000; partnership billings amounted to $400,000
b.
Determine the distribution of partnership net income of $165,000 on billings of $400,000. No specific priority is given to any of the allocation criteria.

Question

Olsen and Katch organized the OK Partnership on 1/1/01. The following entries were made into their capital accounts during 01:
  The partnership agreement called for the following in the allocation of partnership profits and losses:
Salaries of $48,000 and $36,000 would be allocated to Olsen and Katch, respectively
Interest of 8% on average capital balances will be allocated
Katch will receive a bonus of 10% on all partnership billings in excess of $300,000
Any remaining profits/losses will be allocated 60/40 to Olsen and Katch, respectively.
Required (account for each situation independently): 
a.
Determine the distribution of partnership net income. Assume the following priority of allocation: interest, bonus, salaries, then remaining assuming partnership income of $85,000; partnership billings amounted to $400,000
b.
Determine the distribution of partnership net income of $165,000 on billings of $400,000. No specific priority is given to any of the allocation criteria.

Quizplus · Accepted Answer

The Answer of Olsen and Katch organized the OK Partnership on 1/1/01. The following entries were made into their capital accounts during 01:
  The partnership agreement called for the following in the allocation of partnership profits and losses:
Salaries of $48,000 and $36,000 would be allocated to Olsen and Katch, respectively
Interest of 8% on average capital balances will be allocated
Katch will receive a bonus of 10% on all partnership billings in excess of $300,000
Any remaining profits/losses will be allocated 60/40 to Olsen and Katch, respectively.
Required (account for each situation independently): 
a.
Determine the distribution of partnership net income. Assume the following priority of allocation: interest, bonus, salaries, then remaining assuming partnership income of $85,000; partnership billings amounted to $400,000
b.
Determine the distribution of partnership net income of $165,000 on billings of $400,000. No specific priority is given to any of the allocation criteria.

Olsen and Katch Organized the OK Partnership on 1/1/01