A partnership began its first year of operations with the following capital bala

Question

A partnership began its first year of operations with the following capital balances:

Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000

The Articles of Partnership stipulated that profits and losses be assigned in the following manner:

I. Young was to be given a salary of $10,000 with $5,000 salary assigned to Thurman.
II. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
III. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.

IV. Assume that the partnership suffered a net loss during the first year of operations $26,000.

Prepare an Income Allocation Chart to answer the following questions:

A)
What was Young's share of income or loss for the first year?

B)

What was Eaton’s share of income or loss for first year?

C)

What was Thurman’s share of income or loss for the first year?

Explanation / Answer

Young Eaton Thurman Allocation of net income salary 10000 5000 Interest on capital   [Partners opening capital balance * 10%] 14300 [143000*10%] 10400 14300 Remaining loss [26000+ 15000salary + 39000 interest ] = 80000 loss in 5:2:3 -40000    [80000*5/10] - 16000 [80000*2/10] - 24000 [80000*3/10] Total income /(loss) -15700 loss -5600 loss -4700 loss

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