Adam, Bella, and Chris operate a partnership with a complex profit and loss sharing agreement. The average capital balance for Adam, Bella and Chris on December 31, 2013 is $120,000, $270,000, and $340,000, respectively. A 6% interest allocation is provided to each partner based on the average capital balance on December 31, 2013. Adam and Bella receive salary allocations of $40,000 and $50,000, respectively. If partnership net income is above $160,000, after the salary allocations are considered (but before the interest allocations are considered), Chris will receive a bonus of 10% of the income (pre-salary and interest, but net of the bonus. Hint: Bonus = b% x (NI – Bonus). All residual income is allocated in the ratios of 2:2:6 to Adam, Bella, and Chris, respectively.
1. Assuming that partnership incurs a net loss of $26,200 in 2013. What is the TOTAL partnership RESIDUAL INCOME allocation in 2013?
2. Assuming that partnership incurs a net loss of $26,200 in 2013. What will the total partnership profit allocation be for Adam in 2013?
3. Assuming that partnership incurs a net loss of $26,200 in 2013. What will the total partnership profit allocation be for Bella in 2013?
4. Assuming that partnership incurs a net loss of $26,200 in 2013. What will the total partnership profit allocation be for Chris in 2013?