13.

3 Allocation of Profit and Losses

1 Income 220000
2 Loss -34000
3 Income 132000
Priority 1 Salary
2 Bonus
3 Interest
4 P/L %

Johnson Larson Krager Income

1 Capital 40000 25000 145000 220000
Salary 50000 60000 110000
Bonus 20000 90000
Interest 4000 2500 14500 69000
Balance 23000 23000 23000 0
Allocation of Profit $ 77,000 $ 85,500 $ 57,500 $ 220,000

2 Johnson Larson Krager Income

Capital 40000 25000 145000 -34000
Salary 50000 60000 -144000
Bonus 0 -144000
Interest 4000 2500 14500 -165000
Balance -55000 -55000 -55000 0
Allocation of Profit $ (1,000) $ 7,500 $ (40,500) $ (34,000)

3 Johnson Larson Krager Income

Capital 40000 25000 145000 132000
Salary 50000 60000 22000
Bonus 12000 10000
Interest 1905 1190 6905 0
Balance 0 0 0 0
Allocation of Profit $ 51,905 $ 61,190 $ 18,905 $ 132,000
 13.4 Approaches to the allocation of profits and losses
Medina Harris Anderson Income
Method 1 Capital 60,000 80,000 100,000 30,000
Interest 400 2,000 27,600
Salaries 20,000 30,000 - (22,400)
Balance (11,200) (5,600) (5,600) -
Allocation of Profit $ 8,800 $ 24,800 $ (3,600) $ 30,000

Method 2 Medina Harris Anderson Income

Capital 60,000 80,000 100,000 30,000
Interest 400 2,000 27,600
Salaries 11,040 16,560 - -
Allocation of Profit $ 11,040 $ 16,960 $ 2,000 $ 30,000
 13.5 Approches to the allocation of profits and losses
Collins Baker Lebo
Established Method Capital 50,000 120,000 250,000
Salaries 50,000 50,000 50,000
Bonus-Baker 25,000
Bonus-Collins 80,000
Interest 2,000 15,000
Balance 304,000 182,400 121,600
Allocation of Profit $ 434,000 $ 259,400 $ 186,600

What if Analysis Collins Baker Lebo Gordon

Capital 50,000 120,000 250,000 50,000
Salaries 50,000 50,000 50,000 50,000
Bonus-Baker 25,000
Bonus-Gordon 330,000
Interest 2,000 15,000
Profit Allocated 50,000 77,000 65,000 380,000
Profit Allocation 30% 30% 20% 20%
Additional Profit Allocation Required 444,000 444,000 296,000 296,000
Profit Allocation to Maintain Allocation 384,000 384,000 256,000 256,000
 Income Sales
880,000 1,500,000
730,000
705,000
625,000
608,000
-
$ 880,000

Subtotal Printer Sales Non Printer Sales

1,500,000 4,200,000
200,000
25,000
330,000

572,000
1,480,000 Remaining Profits Needed To Increase Collins by 60,000
2,052,000 Total Net Income Required to Increase Collins by 60,000
1,280,000 Remaining Profit to Maintain Current Profit Allocation
1,852,000 Total Net Income to Maintain Current Profit Allocation
 13.6 Evaluating Alternative Profit Allocation Formulas
Owner Proposal Banyan Shultz Witkowski Income yr 1
Profit/Loss % 45% 30% 25% 250,000
Year 1 Profit Allocation 112,500 75,000 62,500
Year 2 135,000 90,000 75,000
Year 3 162,000 108,000 90,000

Year 1 Witkowski Proposal Banyan Shultz Witkowski Remaing Profit Income yr 1

Salaries 120,000 80,000 40,000 10,000 250,000
Bonus-Witkowski 2,500 7,500
Interest on Min Cap Balance 5,000 5,000 5,000 (7,500)
Profit Allocation (2,500) (2,500) (2,500)
Total 122,500 82,500 45,000

Year 2 Witkowski Proposal Banyan Shultz Witkowski Remaing Profit

Salaries 120,000 80,000 40,000 60,000
Bonus-Witkowski 7,000 53,000
Interest on Min Cap Balance 5,000 5,000 5,000 38,000
Profit Allocation 12,667 12,667 12,667
Total 137,667 97,667 64,667

Year 3 Witkowski Proposal Banyan Shultz Witkowski Remaing Profit

Salaries 120,000 80,000 40,000 120,000
Bonus-Witkowski 13,000 107,000
Interest on Min Cap Balance 5,000 5,000 5,000 92,000
Profit Allocation 30,667 30,667 30,667
Total 155,667 115,667 88,667
Income Yr 2 Income Yr 3
300,000 360,000

Income Yr 2 Income Yr 3
300,000 360,000
13.7 Gabriel
Gabriel Hall Remaining Profit Income Capitals
Salaries 35,000 40,000 57,000 132,000 Beg Bal 120000
Bonus 12,000 45,000 1-Apr 20000
Interest 11,467 5,333 28,200 1-Jun
P/L Allocation 11,280 16,920 - 1-Sep 30000
Total $ 69,747 $ 62,253 1-Nov
End Bal 170000
Weighted Avg
Gabriel Hall
Draws Weighted Avg Capital Draws Weighted Avg
30000 60000 50000
58333
15000 20000
28333
15000 26667 40000 16667

143333 66667
13.8 Xavier Yates
Date Capital Draw Bal Weighted Avg Capital Draw Bal
1/1/2002 24000 6000 17500
4/1/2002 4500 21375
7/1/2002
9/1/2002
12/31/2002 1000 1000
Total Weight $ 27,375
Capital Account Balance $ 27,500 $ 16,500

1 Use of weighted capital average more accurately matches contributions of assets to distributions of profit and loss. Use
not take into consideration the amount of work each partner puts into the business

2 Xavier Yates Zale

Interest $ 2,190 $ 1,400 $ 1,520

3 Xavier Yates Zale Income

Capital Balance, 1-1-02 24,000 17,500 13,000 To distribute
Investments 4,500 17,000
Draws (1,000) (1,000) (500)
Capital Interest 2,190 1,400 1,520
Income Distribution 5,330 5,330 5,330
Capital End Balance $ 35,020 $ 23,230 $ 36,350
 Yates Zale
Weighted Avg Capital Draw Bal Weighted Avg
17500 13000 6500

2000 2500
15000 10000
500
$ 17,500 $ 19,000
$ 29,500

utions of profit and loss. Use of weighted capital average does

21100
$ 15,990
$ -
P13.2 Allocation of Profits and Determination of Withdrawals
2005 Capital Accounts
Sandburg Williams
2005 Capital Draws Weight Capital Draws Weight
1-Jan-05 180000 90000 125000 62500
Spouse 28-Feb-05
30-Jun-05 60000 20000 30000 23750
Spouse 31-Aug-05 40000 6667
30-Sep-05 65000 3750 90000 1250
Total Weight 120417 87500
31-Dec-05 412414 357586

2005 Profit Allocation

2005 2006
Sandburg Williams Income 750000 700000
Salaries 100000 125000 Remaining 525000
Bonus 68182 456818
Interest 6021 4375 446422
Profit Distribution 223211 223211 0
Total Profit 397414 352586

2006 Capital Accounts

Sandburg Williams
2006 Capital Draws Weight Capital Draws Weight
1-Jan-06 412414 68736 357586 178793
Spouse 28-Feb-06 85500 108971
30-Jun-06 125000 33652 300000 14397
Spouse 31-Aug-06 50000 50638
30-Sep-06 20000 9397
Total Weight 261997 202587
31-Dec-06 522717.5 366782.5

2006 Profit Allocation

2006 Sandburg Williams Income 700000
Salaries 100000 125000 Remaining 475000
Bonus 63636 411364
Interest 13100 10129 388135
Profit Distribution 194067.5 194067.5 0
Total Profit 370803.5 329196.5
 DISTRIBUTION TO SANDBURG'S EX-WIFE
2005 2006 2007
Net Income 750000 700000
Less: Salaries
Sandburg -75000 -75000
Williams -125000 -125000
Bonus -50000 -50000
Base 500000 450000
25% Base 125000 112500
Amount Received Aug 31, 05 40000
Feb 28, 06 Distribution 85000
Add: Interest on Aug 31, 05 Deficiency 500
Total Feb 28, 06 Distribution 85500
31-Aug-06 50000
Feb 28, 07 Due for Income traceable to 2006 62500
Feb 28, 07 Final Distribution Due 230109
Total Due Feb 28, 07 292609