Question

Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2021, capital balances were as follows:

Purkerson	$	60,000
Smith		40,000
Traynor		20,000

Due to a cash shortage, Purkerson invests an additional $14,000 in the business on April 1, 2021.

Each partner is allowed to withdraw $1,000 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 10 percent of the average monthly capital balance for the year without regard for normal drawings.
• Any remaining profit or loss is allocated 2:3:5 to Purkerson, Smith, and Traynor, respectively. The net income for 2021 is $36,000. Each partner withdraws the allotted amount each month.

Prepare a schedule showing calculations for the partners' 2021 ending capital balances.

Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2021, capital balances were as follows:

Purkerson	$	60,000
Smith		40,000
Traynor		20,000

Due to a cash shortage, Purkerson invests an additional $14,000 in the business on April 1, 2021.

Each partner is allowed to withdraw $1,000 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 10 percent of the average monthly capital balance for the year without regard for normal drawings.
• Any remaining profit or loss is allocated 2:3:5 to Purkerson, Smith, and Traynor, respectively. The net income for 2021 is $36,000. Each partner withdraws the allotted amount each month.

Prepare a schedule showing calculations for the partners' 2021 ending capital balances.

Answer 1

Answer:

Schedule of Capital Balances for the year ending 2021:

Particulars	Pukerson's Capital ($)	Smith's Capital ($)	Traynor's Capital ($)	Totals ($)
Capital at the begining of the year	60,000	40,000	20,000	120,000
Add: Additional Capital	14,000	-	-	14,000
Add: Allocation of net income	17,240	21,785	(2,025)	37,000
Less: Drawings (1000 *12 months)	(12,000)	(12,000)	(12,000)	(36,000)
Capital at the end of the Year	79,240	49785	5,975	13,5000

Workings:

a. Allocation of Net Income:

Particulars	Pukerson ($)	Smith ($)	Traynor ($)	Totals ($)
Net Income	-	-	-	36,000
Interest @ 10%	7,050 **	4,000	2,000	(12,050)
Salary	15,000	25,000	8,000	(48,000)
Remaining loss allocated @ 2:3:5 ratio	-	-	-	(24050)
	(4,810)	(7,215)	(12,025)	24050
Totals	17,240	21,785	(2,025)	0

b. Calculation of Purkerson's Interest allocation:

Beginning Balance (60,000*3)	$ 180,000
Ending Balance (74,000*9)	$ 666,000
Total Balance	$ 846,000
Divide by No. of months	12
Average monthly capital balance	$ 70,500
Interest @ 10%	$ 7,050 **