Partnership income allocation—Salary Allowance
Mel and Dav created a partnership to own and operate a health-food
store. The partnership agreement provided that Mel receive a salary of
$10,000 and Dav a salary of $5,000 to recognize their relative time
spent in operating the store. Remaining profits and losses were divided
60:40 to Mel and Dav, respectively. Income of $13,000 for 2011, the
first year of operations, was allocated $8,800 to Mel and $4,200 to Dav.
January 1, 2012, the partnership agreement was changed to reflect the
fact that Dav could no longer devote any time to the store’s operations.
The new agreement allows Mel a salary of $18,000, and the remaining
profits and losses are divided equally. In 2012 an error was discovered
such that the 2011 reported income was understated by $4,000. The
partnership income of $25,000 for 2012 included this $4,000 related to
REQUIRED: Prepare a schedule to allocate the $25,000 reported 2012 partnership income to Mel and Dav.