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 $4,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $500 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, $13,000; Smith, $29,000; 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 $25,000. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Purkerson $ 92,000 Smith 72,000 Traynor 20,000

Explanation / Answer

Solution:

Purkerson average monthly capital balance:

={(92000×3months)+(96000×9 months)}/12 months

=$95,000

Interest on Purkerson capital=95000×20%

=$19,000

Allocation of income:

$19,000

$14,400

(72000×20%)

$4,000

(20000×20%)

$37,400

(30,200)

(60400×5/10)

(18,120)

(60400×3/10)

(12,080)

(60400×2/10)

(60,400)

Ending capital balances for 2018:

Purkerson Smith Traynor Total Interest on capital

$19,000

$14,400

(72000×20%)

$4,000

(20000×20%)

$37,400

Salary $13,000 $29,000 $6,000 $48,000 Remaining income{25,000-37,400-48,000=(60,400)}

(30,200)

(60400×5/10)

(18,120)

(60400×3/10)

(12,080)

(60400×2/10)

(60,400)

Total $1,800 $25,280 (2,080) 25,000

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.