CASE 1

Albion and Blaze share profits and losses equally. Albion and Blaze receive salary
allowances of $20,000 and $30,000, respectively, and both partners receive 10%
interest on their average capital balances. Average capital balances are calculated at the
beginning of each month balance regardless of when additional capital contributions or
permanent withdrawals are made subsequently within the month. Partners’ drawings are
not used in determining the average capital balances. Total net income for 2006 is
$120,000.

Albion Blaze
January 1 capital balances $ 100,000 $ 120,000
Yearly drawings ($1,500 a month) 18,000 18,000
Permanent withdrawals of capital:
June 3 ( 12,000 )
May 2 ( 15,000 )
Additional investments of capital:
July 3 40,000
October 2 50,000

Required:

1. What is the weighted-average capital for Albion and Blaze in 2006?

2. If the average capital for Albion and Blaze from the above information is $112,000
and $119,000, respectively, what will be the total amount of profit allocated after the
salary and interest distributions are completed?
3. If the average capital balances for Albion and Blaze are $100,000 and $120,000, what
will the final profit allocations for Albion and Blaze in 2006?

CASE 2

Evans, Fitch, and Gault operate a partnership with a complex profit and loss sharing
agreement. The average capital balance for each partner on December 31, 2006 is
$300,000 for Evans, $250,000 for Fitch, and $325,000 for Gault. An 8% interest
allocation is provided to each partner. Evans and Fitch receive salary allocations of
$10,000 and $15,000, respectively. If partnership net income is above $25,000, after
the salary allocations are considered (but before the interest allocations are considered),
Gault will receive a bonus of 10% of the original amount of net income. All residual
income is allocated in the ratios of 2:3:5 to Evans, Fitch, and Gault, respectively.

Required:
1. Prepare a schedule to allocate income to the partners assuming that partnership
net income is $250,000.

2. Prepare a journal entry to distribute the partnership's income to the partners

(assume that an Income Summary account is used by the partnership)