Purkerson, Smith, and Traynor have operated a bookstore for a number of years as
ID: 2437482 • Letter: P
Question
Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2015, capital balances were as follows:
Due to a cash shortage, Purkerson invests an additional $6,000 in the business on April 1, 2015.
The partners have used the same method of allocating profits and losses since the business's inception:
Each partner is given the following compensation allowance for work done in the business: Purkerson, $12,000; Smith, $22,000; and Traynor, $8,000.
Each partner is credited with interest equal to 10 percent of the average monthly capital balance for the year without regard for normal drawings.
Any remaining profit or loss is allocated 3:2:5 to Purkerson, Smith, and Traynor, respectively. The net income for 2015 is $29,000. Each partner withdraws the allotted amount each month.
What are the ending capital balances for 2015?
Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2015, capital balances were as follows:
Explanation / Answer
Allocation of Income :-
Purkerson
Smith
Traynor
Total
Interest on Capital (10%)
5850*
(34000 * 10%)
=3400
(15000 * 10%)
=1500
10750
Salary
12000
22000
8000
42000
Remaining Income(Loss)
29000 – 10750 – 42000
=(23750)
(7125)
(4750)
(11875)
(23750)
Totals
10725
20650
(2375)
29000
*Int on capital for Purkerson :-
First on 54000 for 3 months = 54000 * 10% * 3/12 = 1350
Now on 60000 (54000 + 6000) for 9 months = 60000 * 10% * 9/12 = 4500
Total Int on capital = 1350 + 4500 = $5850
Statement of Partners Capital:-
Purkerson
Smith
Traynor
Total
Beginning Balance
54000
34000
15000
103000
Additional Capital
6000
6000
Income (above)
10725
20650
(2375)
29000
Drawings ($700 per month)
(8400)
(8400)
(8400)
(25200)
Ending Capital Balance
62325
46250
4225
112800
Purkerson
Smith
Traynor
Total
Interest on Capital (10%)
5850*
(34000 * 10%)
=3400
(15000 * 10%)
=1500
10750
Salary
12000
22000
8000
42000
Remaining Income(Loss)
29000 – 10750 – 42000
=(23750)
(7125)
(4750)
(11875)
(23750)
Totals
10725
20650
(2375)
29000
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