Purkerson, Smith, and Traynor have operated a bookstore for a number of years as

Question

Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2018, capital balances were as follows:

Due to a cash shortage, Purkerson invests an additional $10,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $800 cash each month.

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, $10,000; Smith, $20,000; and Traynor, $6,000.

Each partner is credited with interest equal to 20 percent of the average monthly capital balance for the year without regard for normal drawings.

Any remaining profit or loss is allocated 5:3:2 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $20,000. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Explanation / Answer

Calculation of Pukerson - Interest on Capital Balance - Jan 1 - April 1 - $98,000 X 3 Months        294,000.00 Balance April 1 - Dec 31 - $108,000 X 9 Months        972,000.00 Total    1,266,000.00 Avg. Monthly Balance - $1,266,000 / 12 Months        105,500.00 Interest on Capital - $105,500 X 20%          21,100.00 Allocation of Profit Pukerson Smith Traynor Total Net Income         20,000.00 Compensating Allowance          10,000.00         20,000.00         6,000.00         36,000.00 Interest on Capital          21,100.00         15,600.00         4,000.00         40,700.00 Remaining Profit       (56,700.00) Allocation of Profit (Loss) - 5:3:2        (28,350.00)       (17,010.00)    (11,340.00)       (56,700.00) Total Profit (Loss) Allocated            2,750.00         18,590.00       (1,340.00) Statement of Partners' Capital Pukerson Smith Traynor Total Beginning Balance          98,000.00         78,000.00       20,000.00       196,000.00 Additional Capital Contribution          10,000.00                         -                        -           10,000.00 Profit (Loss) Allocated            2,750.00         18,590.00       (1,340.00)         20,000.00 Drawings          (9,600.00)         (9,600.00)       (9,600.00)       (28,800.00) Ending Balance        101,150.00         86,990.00         9,060.00       197,200.00

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