Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego, California, to be operated as a partnership Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $310,000, $280,000, and $140,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations: . Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year. Profits and losses are allocated according to the following plan 1. A salary allowance is credited to each partner in an amount equal to $9 per billable hour worked by that individual during the year (computed without regard for current income or drawings) bonus, the salary allowance, and the interest. Also included in the agreement is the provision that there will be no bonus if 2. Interest is credited to the partners\' capital accounts at the rate of 12 percent of the average monthly balance for the year 3. An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the there is a net loss or if salary and interest result in a negative remainder of net income to be distributed 4. Any remaining partnership profit or loss is to be divided evenly among all partners Because of financial shortfalls encountered in getting the business started, Gray invests an additional $10,000 on May 1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 20 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet\'s entrance into the firm; the general provisions continue to be applicable Solution a) Allocation for Income for Year 2016,2017 and 2018 as follows: Gray, Stone Lawson & Monet 2016 Statement Of Partner\'s Capital Income Allocation 2016 Profit Balance After Salary & Interest For the Year ending 2017 Particulars Gray Stone Lawson Total($) Net Income 86000 Particulars Gray Stone Lawson Totals($) Salary Allowance 16290 13860 20700 50850 Less Salary -50850 Beginning balances 310000 280000 140000 730000 Interest 38000 33600 16800 88400 Less Interest -88400 Additional Balances(1 May 2016) 10000 0 0 0 Bonus (Note 1) 0 0 0 Balance -53250 Profit Allocation 36540 29710 19750 86000 Remainder to Allocate($53250 loss sharing in 1:1:1) -17750 -17750 -17750 - 53250 Drawings (10% of Opening capital balance for the year) -31000 -28000 -14000 -73000 Income Allocation 36540 29710 19750 86000 Note 1. No bonus given due to negative remainder of net income. Ending Balances 325540 281710 145750 753000 Income Allocation 2017 2017 Gray, Stone Lawson & Monet Particulars Gray Stone Lawson Monet Total($) Profit Balance After Salary & Interest .

1. Gray, Stone, and Lawson open an accounting practice on January 1, 2016, in San Diego,
California, to be operated as a partnership Gray and Stone will serve as the senior partners
because of their years of experience. To establish the business, Gray, Stone, and Lawson
contribute cash and other properties valued at $310,000, $280,000, and $140,000, respectively.
An articles of partnership agreement is drawn up. It has the following stipulations: . Personal
drawings are allowed annually up to an amount equal to 10 percent of the beginning capital
balance for the year. Profits and losses are allocated according to the following plan 1. A salary
allowance is credited to each partner in an amount equal to $9 per billable hour worked by that
individual during the year (computed without regard for current income or drawings) bonus, the
salary allowance, and the interest. Also included in the agreement is the provision that there will
be no bonus if 2. Interest is credited to the partners' capital accounts at the rate of 12 percent of
the average monthly balance for the year 3. An annual bonus is to be credited to Gray and Stone.
Each bonus is to be 10 percent of net income after subtracting the there is a net loss or if salary
and interest result in a negative remainder of net income to be distributed 4. Any remaining
partnership profit or loss is to be divided evenly among all partners Because of financial
shortfalls encountered in getting the business started, Gray invests an additional $10,000 on May
1, 2016. On January 1, 2017, the partners allow Monet to buy into the partnership. Monet
contributes cash directly to the business in an amount equal to a 20 percent interest in the book
value of the partnership property subsequent to this contribution. The partnership agreement as to
splitting profits and losses is not altered upon Monet's entrance into the firm; the general
provisions continue to be applicable
Solution
a) Allocation for Income for Year 2016,2017 and 2018 as follows: Gray, Stone Lawson &
Monet 2016 Statement Of Partner's Capital Income Allocation 2016 Profit
Balance After Salary & Interest For the Year ending 2017 Particulars Gray Stone Lawson
Total($) Net Income 86000 Particulars Gray Stone Lawson Totals($) Salary Allowance
16290 13860 20700 50850 Less Salary -50850 Beginning balances 310000 280000 140000
730000 Interest 38000 33600 16800 88400 Less Interest -88400 Additional Balances(1 May
2016) 10000 0 0 0 Bonus (Note 1) 0 0 0 Balance -53250 Profit Allocation 36540 29710
19750 86000 Remainder to Allocate($53250 loss sharing in 1:1:1) -17750 -17750 -17750 -
53250 Drawings (10% of Opening capital balance for the year) -31000 -28000 -14000 -73000
Income Allocation 36540 29710 19750 86000 Note 1. No bonus given due to negative
remainder of net income. Ending Balances 325540 281710 145750 753000
Income Allocation 2017 2017 Gray, Stone Lawson & Monet Particulars Gray
Stone Lawson Monet Total($) Profit Balance After Salary & Interest Statement Of Partner's

2. Capital Salary Allowance 25200 13500 13320 11610 63630 Net Income -30400 For the
Year ending 2017 Interest 39064.8 33805.2 17490 18072 108432 Less: Salary -63630
Particulars Gray Stone Lawson Monet Totals($) Bonus (Note 2) 0 0 0 0 0 Less: Interest -
108432 Beginning balances 325540 281710 145750 0 753000 Remainder to Allocate($202462
loss sharing in 1:1:1)(Note 3) -67487.3 -67487.3 -67487.3 0 -202462 Balance -202462 New
Partner's Contrbution(Total old Partner's Capital*20%) 150600 150600 Income Allocation -
3222.53 -20182.1 -36677.3 29682 -30400 Profit Allocation -3222.53 -20182.1 -36677.3 29682
-30399.9 Note 2. No bonus given due to net loss in current Year 2017. Drawings (10%
of Opening capital balance for the year) -32554 -28171 -14575 -15060 0 Note 3. As per
question old profit sharing ration remain same after new partner admission. Ending Balances
289763.5 233356.9 94497.7 165222 782840.1 Income Allocation 2018 2018
Gray, Stone Lawson & Monet Particulars Gray Stone Lawson Monet Total($) Profit
Balance After Salary & Interest Statement Of Partner's Capital Salary Allowance 17820
15480 12690 15120 61110 Net Income 202800 For the Year ending 2018 Interest
34771.62 28002.83 11339.64 19826.64 93940.73 Less: Salary -61110 Particulars Gray Stone
Lawson Monet Totals($) Bonus ($47749.36*10/110) 4340.851 4340.851 0 0 8681.702 Less:
Interest -93940.64 Beginning balances 289763.5 233356.9 94497.7 165222 782840.1
Remainder to Allocate($39067.658 Profit sharing in 1:1:1)(Note 4) 13022.55 13022.55
13022.55 0 39067.66 Balance 47749.36 Profit Allocation 69955.02 60846.23 37052.19
34946.64 202800.1 Income Allocation 69955.02 60846.23 37052.19 34946.64 202800.1 Less:
Bonus(4340.851+4340.851) 8681.702 Drawings (10% of Opening capital balance for the year) -
28976.4 -23335.7 -9449.77 -16522.2 -78284 Net Balance(to be distributed) 39067.658
Ending Balances 330742.2 270867.4 122100.1 183646.4 907356.2 Note 4. Bonus given
due to net profit after salary,interest and bonus in current Year 2018. Note: In case of any
clarification please let me know. Salary Calculation Year Gray Stone Lawson Monet
2016 (1810*9) (1540*9) (2300*9) 2017 (2800*9) (1500*9) (1480*9) (1290*9) 2018
(1980*9) (1720*9) (1410*9) (1680*9) Interest Calculation Year Gray Stone Lawson
Monet 2016 (310000*12%*(4/12))+(320000*0.12*(8/12)) 280000*12% 140000*12% 2017
325540*12% 281710*12% 145750*12% 150600*12% 2018 289763.5*12% 233356.9*12%
94497*12% 165222*12% Loss sharing Year 2016 $53250 loss sharing in Profit
Sharing Ratio 1:1:1 2017 $202462 loss sharing in Profit Sharing Ration 1:1:1 2018
$39067.658 Profit sharing in Profit Sharing Ratio 1:1:1