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:

Purkerson	$	86,000
Smith		66,000
Traynor		30,000

Due to a cash shortage, Purkerson invests an additional $12,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $900 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, $10,000; Smith, $26,000; 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 4:2:4 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $28,000. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Answer 1

Solution:
Purkerson average monthly capital balance:
{(86000×3months)+(98000×9 months)}/12 months
$95,000
Interest on Purkerson capital=95000×20%
=$19,000
Allocation of income:
	Purkerson	Smith	Traynor	Total
Interest on capital	$19,000	$13,200	$6,000	$38,200
		(66000×20%)	(30,000×20%)
Salary	$10,000	$26,000	$6,000	$42,000
Remaining income{28,000-38,200-42,000=(52,,200)}	-20,880	-10,440	-20,880	-52,200
	(52,200×4/10)	(52,200×2/10)	(52,200×4/10)
Total	$8,120	$28,760	-8,880	28,000
Ending capital balances for 2018:
	Purkerson	Smith	Traynor	Total
Beginning capital	$86,000	$66,000	$30,000	$182,000
Additional contribution	$12,000			$12,000
Income(above)	$8,120	$28,760	-8,880	$28,000
Drawings (900 each month)	-10,800	-10,800	-10,800	-32,400
Ending capital balances	$95,320	$83,960	$10,320	$189,600