On January 1, 2017, the dental partnership of Angela, Diaz, and Krause was forme

Question

On January 1, 2017, the dental partnership of Angela, Diaz, and Krause was formed when the partners contributed $54,000, $82,000, and $84,000, respectively. Over the next three years, the business reported net income and (loss) as follows:

During this period, each partner withdrew cash of $17,000 per year. Krause invested an additional $6,000 in cash on February 9, 2018.

At the time that the partnership was created, the three partners agreed to allocate all profits and losses according to a specified plan written as follows:

Each partner is entitled to interest computed at the rate of 10 percent per year based on the individual capital balances at the beginning of that year.

Because of prior work experience, Angela is entitled to an annual salary allowance of $17,500 per year and Diaz is entitled to an annual salary allowance of $11,400 per year.

Any remaining profit will be split as follows: Angela, 20 percent; Diaz, 30 percent; and Krause, 50 percent. If a net loss remains after the initial allocations to the partners, the balance will be allocated: Angela, 30 percent; Diaz, 40 percent; and Krause, 30 percent.

Determine the ending capital balance for each partner as of the end of each of these three years. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

Explanation / Answer

Calculation of ending capital balance for each partner as of the end of 2017 Debit Side Angela Diaz Krause Credit Side Angela Diaz Krause To Cash $17,000 $17,000 $17,000 By Cash $54,000 $82,000 $84,000 By Interest (10% of beginning balances) $5,400 $8,200 $8,400 By Salary $17,500 $11,400 Ending capital balances of 2017 $68,520 $97,530 $96,950 By Profit (ratio 2:3:5) $8,620 $12,930 $21,550 Total $85,520 $114,530 $113,950 Total $85,520 $114,530 $113,950 Profit remaining in 2017 after allocation of salary and interest = $94000-$28900 - $22000 = $43,100 Calculation of ending capital balance for each partner as of the end of 2018 Debit Side Angela Diaz Krause Credit Side Angela Diaz Krause To Cash $17,000 $17,000 $17,000 By Beginning balances $68,520 $97,530 $96,950 By Cash $6,000 By Interest (10% of beginning balances) $6,852 $9,753 $9,695 By Salary $17,500 $11,400 Ending capital balances of 2018 $78,032 $104,923 $101,045 By Profit (ratio 2:3:5) $2,160 $3,240 $5,400 Total $95,032 $121,923 $118,045 Total $95,032 $121,923 $118,045 Profit remaining in 2018 after allocation of salary and interest = $66000-$28900 - $26300 = $10,800 Calculation of ending capital balance for each partner as of the end of 2019 Debit Side Angela Diaz Krause Credit Side Angela Diaz Krause To Cash $17,000 $17,000 $17,000 By Beginning balances $78,032 $104,923 $101,045 To Loss (in ratio 3:4:3) $31,890 $42,520 $31,890 By Interest (10% of beginning balances) $7,803 $10,492 $10,105 By Salary $17,500 $11,400 Ending capital balances of 2019 $54,445 $67,295 $62,260 Total $103,335 $126,815 $111,150 Total $103,335 $126,815 $111,150 Loss remaining in 2018 after allocation of salary and interest = -$49000-$28900 - $28400 = -$1,06,300 Partner's Name Ending Capital Balances 2017 2018 2019 Angela $68,520 $78,032 $54,445 Diaz $97,530 $104,923 $67,295 Krause $96,950 $101,045 $62,260

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