Purkerson, Smith, and Traynor have operated a bookstore for a number of years as
ID: 2568435 • Letter: P
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, $15,000; Smith, $25,000; and Traynor, $8,000.
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 5:2:3 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $26,000. Each partner withdraws the allotted amount each month.
What are the ending capital balances for 2018?
Purkerson $ 84,000 Smith 64,000 Traynor 20,000Explanation / Answer
Particulars
Amount ($)
Net Income
26000
Compensation
-48000
Interest on Capital
-35100
Net Loss
-57100
Particulars
Purkerson
Smith
Traynor
Opening Balance
84000
64000
20000
Additional Capital
10000
Compensation
15000
25000
8000
Interest on Capital
16800
[(84000*20%)]
12800
[(64000*20%)]
4000
[(20000*20%)]
1500
[10000*20%*9/12]
Drawings
-9600
-9600
-9600
Share of Loss
-28550
[57100*5/10]
-11420
[57100*2/10]
-17130
[57100*3/10]
Ending Balance
89150
80780
5270
Particulars
Amount ($)
Net Income
26000
Compensation
-48000
Interest on Capital
-35100
Net Loss
-57100
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