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	$	96,000
Smith		76,000
Traynor		30,000

Due to a cash shortage, Purkerson invests an additional $6,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $700 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 4:2:4 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $29,000. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

	Ending Capital Balances Purkerson Smith Traynor Totals

Answer 1

Allocation of Income
	Purkerson	smith	Traynor	Total
Salary	$15,000	$25,000	$8,000	$48,000
Interest	20100	15200	6000	$41,300
Remaining income/(loss) allocated in 4:2:4 ratio	-24120	-12060	-24120	($60,300)
(29000-48000-41300)
Total	$10,980	$28,140	($10,120)	$29,000
Calculation of Interest
	Purkerson	Smith	Traynor
From Jan 1-April 1-96000*3	288000
From April 1-31 dec 102000*9	918000
Total	1206000	912000	360000
		(76000*12)	(30000*12)
No. of months	12	12	12
Avg monthly capital balance	100500	76000	30000
Interest rate	20%	20%	20%
Interest	20100	15200	6000
	Purkerson	Smith	Traynor
Statement of Partner capital
Beginning Balance	$96,000	76000	30000
Addional capital contributed	$6,000	0	0
Income/(loss)	$10,980	$28,140	($10,120)
drawings (700*12)	-8400	-8400	-8400
Ending capital balance	$104,580	$95,740	$11,480
answer
Purkerson	$104,580
Smith	$95,740
Traynor	$11,480
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