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Accounting Principles - Payroll Tax, Depreciation Method

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Problem C - II
Yount and Lance have a partnership agreement which includes the following provisions regarding sharing net income and net loss:

1. Since Yount will work only part time in the partnership, he will be allocated a salary allowance that is one half the salary allowance allocated to Lance. Lance's salary allowance will be 10% of sales.

2. Both partners will be given an interest allowance of 10% on their beginning-of-the-year capital account balances.

3. The remaining income and loss is to be divided 40% to Yount and 60% to Lance.

The capital account balances on January 1, 2010, for Yount and Lance were $80,000 and $140,000, respectively. During 2010, the Yount and Lance partnership had sales of $800,000, cost of goods sold of $370,000, and operating expenses of $210,000.

Prepare a schedule which clearly sets out the division of income or loss to the partners for 2010.

Problem C - III

Prepare the necessary journal entries to record the following transactions in 2010 for Drake Company.

March 1 - Exchanged old store equipment and $80,000 cash for new store equipment. The old store equipment originally cost $96,000 and had a book value of $64,000 on the date of exchange. The old store equipment had a fair market value of $76,000 on the date of exchange. Assume depreciation on the old equipment has already been recorded for the current year. The exchange had commercial substance.

July 31 - Exchanged a delivery truck and $100,000 cash for a new delivery truck. The old delivery truck originally cost $108,000 and had accumulated depreciation of $76,000 on the date of exchange. The fair market value of the old delivery truck on the date of exchange was $24,000. Assume the depreciation on the truck has already been recorded for the current year. The exchange had commercial substance.

Aug 31 - Equipment with a 4-year useful life was purchased on January 1, 2007, for $60,000 and was sold for $36,000. The equipment had been depreciated using the straight-line method with an estimated salvage value of $12,000. Depreciation Expense was last recorded on December 31, 2009.

Problem C - IV

Ray Company has three employees whose monthly salaries and accumulated year-to-date wages at October 31, 2010 are as follows:

Accumulated
Employee Wages 10/31/10 Monthly Salary
Agee $60,000 $6,000
Bates 95,000 9,500
Eaton 6,000 4,500

The following payroll taxes are applicable:
FICA tax on first $100,000 8%
FUTA tax on first $7,000 6.2%*
SUTA tax on first $7,000 5.4%

*Less a credit equal to the state unemployment tax rate.

The amount of federal income tax withholding for the November payroll is $900, $1,800, and $800 for Agee, Bates, and Eaton, respectively.

Prepare the journal entries to record the November payroll and the employer's payroll tax expense for the month of November.

Problem C - V

The following information is available for Richards Company, which has an accounting year-end on December 31, 2010.

1. A delivery truck was purchased on June 1, 2008, for $80,000. It was estimated to have an $8,000 salvage value after being driven 120,000 miles. During 2010, the truck was driven 20,000 miles. The units-of-activity method of depreciation is used.

2. A building was purchased on January 1, 1983, for $3,000,000. It is estimated to have a $30,000 salvage value at the end of its 40-year useful life. The straight-line method of depreciation is being used.

3. Store equipment was purchased on January 1, 2009, for $180,000. It was estimated that the store equipment would have an $18,000 salvage value at the end of its 5-year useful life. The double-declining-balance method of depreciation is being used.

Instructions
Complete the table shown below by filling in the appropriate amounts.
Accumulated Depreciation
Depreciation Expense for Book Value at
Assets 1/1/10 2010 12/31/10

Delivery truck $ 31,200 $ $

Building $2,004,750 $ $

Store equipment $ 72,000 $ $

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Solution Summary

The following solution provides multiple schedules that outline the division of income or losses for partners, journal entries that record business transactions, the method of depreciation used, and expenses. Journal entries in the solution are provided so that monthly payrolls and employers' payroll tax expenses are clearly shown.

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Problem C - II

Yount and Lance have a partnership agreement which includes the following provisions regarding sharing net income and net loss:

1. Since Yount will work only part time in the partnership, he will be allocated a salary allowance that is one half the salary allowance allocated to Lance. Lance's salary allowance will be 10% of sales.

2. Both partners will be given an interest allowance of 10% on their beginning-of-the-year capital account balances.

3. The remaining income and loss is to be divided 40% to Yount and 60% to Lance.

The capital account balances on January 1, 2010, for Yount and Lance were $80,000 and $140,000, respectively. During 2010, the Yount and Lance partnership had sales of $800,000, cost of goods sold of $370,000, and operating expenses of $210,000.

Instructions
Prepare a schedule which clearly sets out the division of income or loss to the partners for 2010.

Schedule

Sales $800,000
Cost of goods sold $370,000
Operating expenses $210,000
Income before appropriation $220,000
Less: Interest on capital
Yount (10% on $80,000) $ 8,000
Lance (10% of $140,000) $ 14,000
Less: Salaries to partners
Yount (50% of Lances' salary) $ 40,000
Lance (10% of sales) $ 80,000
Net income before allocation to partners $ 78,000

Yount's share @ 40% $31,200
Lance's share @ ...

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