Question

Whitman and Greene are partners in a real estate venture. At January 1, 2020, their respective capital balances were $200,000 and $245,000. Their partnership agreement provides that Whitman is to receive a guaranteed salary of $100,000, and that remaining profits after the salary are to be shared in a 2:3 ratio. Partnership operations for the year 2020 resulted in income of $75,000, before distributions to partners. Whitman’s salary is paid in cash during the year, but there are no other withdrawals or capital changes. Assume full implementation.

Required

a. Compute the balance of each partner’s capital account at December 31, 2020.

Balance at December 31, 2020
Whitman	$Answer
Greene	$Answer

b. Compute the balance of each partner’s capital account at December 31, 2020, assuming partnership income was $150,000.

Balance at December 31, 2020
Whitman	$Answer
Greene	$Answer

Answer 1

• All working forms part of the answer
• Requirement ‘a’

	Whitman	Greene	Net Income distributed	Undistributed Net Income
Net Income				$          75,000.00
Salary	$                100,000.00		$        100,000.00	$        (25,000.00)
Net Loss distributed	$                (10,000.00)	$        (15,000.00)	$        (25,000.00)	$                          -
Total Distribution	$                  90,000.00	$        (15,000.00)	$          75,000.00
Capital balances on Jan 1 2020	$                200,000.00	$        245,000.00
Capital balances on Dec 31 2020	$                290,000.00	$        230,000.00

Balance at December 31, 2020
Whitman	$ 290,000
Greene	$ 230,000

• Requirement ‘b’

	Whitman	Greene	Net Income distributed	Undistributed Net Income
Net Income				$        150,000.00
Salary	$                100,000.00		$        100,000.00	$          50,000.00
Net Loss distributed	$                  20,000.00	$          30,000.00	$          50,000.00	$                          -
Total Distribution	$                120,000.00	$          30,000.00	$        150,000.00
Capital balances on Jan 1 2020	$                200,000.00	$        245,000.00
Capital balances on Dec 31 2020	$                320,000.00	$        275,000.00

Balance at December 31, 2020
Whitman	$ 320,000
Greene	$ 275,000