A partnership begins its first year with the following capital balances: The art

Question

A partnership begins its first year with the following capital balances:

The articles of partnership stipulate that profits and losses be assigned in the following manner:

Each partner is allocated interest equal to 10 percent of the beginning capital balance.

Bernard is allocated compensation of $14,000 per year.

Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.

Each partner is allowed to withdraw up to $6,000 cash per year.

Assuming that the net income is $68,000 and that each partner withdraws the maximum amount allowed, what is the balance in Collins capital account at the end of that year?

Explanation / Answer

Allocation of Net income: Net income during the year 68000 Less: Interest on Capital Alfred (58,000 *10%) 5800 Bernard (68000*10%) 6800 Collins(78000*10%) 7800 20400 Less: Bernard Compensation 14000 Remaining income to be shared in 3:3:4 33600 Share of remaining Income: Alfred(33600 *3/10) 10080 Bernard (33600*3/10) 10080 Collins (33600*4/10) 13440 Balance of Collins Capital at the end of year Opening Capital 78000 Add: Interest on Capital 7800 Add: Share of profit 13440 Less: Drawings during the year 6000 Closing Balance of Collins Capital 93240

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