Case :
Kimberly Gardner invested $20,000 and Leah Johanssen invested $10,000 in a public relations firm that has operated for 10 years. Neither partner has made an additional investment. Gardner and Johanssen have shared profits and losses in the ratio of 2:1, which is the ratio of their investments in the business. Gardner manages the office, supervises the employees, and does the accounting. Johanssen, the moderator of a television talk show, is responsible for marketing. Her high profile generates important revenue for the business. During the year ended December 20X4, the partnership earned net income of $87,000, shared in the 2:1 ratio. On December 31, 20X4, Gardner's capital balance was $150,000, and Johanssen's capital balance was $100,000.
Respond to each of the following situations.
1. During January 20X5, Gardner learned that revenues of $18,000 were omitted from the reported 20X4 income. She brings this omission to Johanssen's attention, pointing out that Gardner's share of this added income is two-thirds, or $12,000, and Johanssen's share is one-third, or $6,000. Johanssen believes that they should share this added income on the basis of their capital balances-60%, or $10,800, to Gardner and 40%, or $7,200, to herself. Which partner is correct? Why?
2. Assume that the 20X4 $18,000 omission was an account payable for an operating expense. On what basis would the partners share this amount?