Question

Chief, Chef, and Sous established a partnership. The partnership rules state that income will be distributed by:

1) Sous receives $10,000 salary

(2) each partner receives 5% interest on average capital balances

(3) remaining income is distributed 3:2:1 (Chief, Chef, Sous)

(4) The amount draw exceeding income for any partner must be contributed back to the partnership

The year begins with capital as follows: Chief = $50,000, Chef = $40,000, Sous = $20,000. During the year, Chief had draw of $10,000 taken January 1, Chef took draw of $8,000 on May 1 and another $8,000 on September 1, and Sous took $6,000 draw on July 1.

There are two independent situations. In situation #1, the partnership earns $104,600. In situation #2, the partnership earns $24,800. For each of these, what would be the amount of income distributed to each partner? What would be the ending capital balance for each partner? Don't use $ signs, but do add commas! For negatives, use -

In situation #1, income to Chief is [a], Chef gets [b] and Sous gets [c]. The end of year capital balances are Chief [d], Chef [e] and Sous [f]

In situation #2, income to Chief is [g], Chef gets [h] and Sous gets [i]. The end of year capital balances are Chief [j], Chef [k] and Sous [l]

Answer 1

SITUATION #1

Particulars	$
Profits Salary to Sous Interest on average capital balances Chief=40,000 x 5%= Chef=32,000 x 5%= Sous=17,000 x 5%= Remaining income= Share of chief in income=(90,150 x3)/6 Share of chef in income=(90,150 x 2)/6 Share of Sous in income=90,150/6=	104,600 -10,000 -2,000 -1,600 -850 90,150 45,075 30,050 15,025

Calculation of average capital balance of Chief

particulars	$
Opening balance- drawings on january 1=50,000-10,000( Withdrawn on 1 January)	40,000

Calculation of average capital balance of Chef

Particulars	$
Balance of Chef from 1 january to 30 april=40,000 Balance of Chef from 1may to 31 august=32,000 Balance of chef from 1 september to 31 december=24,000 Calculation of average=((40,000x4)+(32,000x4)+(24,000x4))/12=(160,000+128,000+96,000)/12=384,000/12=32,000	32,000

Calculation of average capital balance of Sous

Particulars	$
Balance of Sous from 1 january to 30 june Balance of Sous from 1 july to 31 december Calculation of average=((20,000x6)+(14,000x6))/12=(120,000+84,000)/12=17,000	20,000 14,000 17,000

Calculation of income of each partner

Particulars	Chief	Chef	Sous
Salary Interest on capital Share in income Total income	2,000 45,075 47,075(a)	1,600 30,050 31,650(b)	10,000 850 15,025 25,875(c)

End of year capital balances

Particulars	Chief	Chef	Sous
Opening balance Income Drawings Closing balance	50,000 47,075 -10,000 87,075(d)	40,000 31,650 -16,000 55,650(e)	20,000 25,875 -6,000 39,875(f)

Situation #2

Particulars Profits Salary to Sous Interest to partner Chief(40,000 x 5%) Chef(32,000 x 5%) Sous(17,000 x 5%) Remaining income Share of Chief in income Share of Chef in income Share of Sous in income

$ 24,800 -10,000 -2,000 -1,600 -850 10,350 5,175 3,450 1,725

Calculation of income of each partner

Particulars	Chief	Chef	Sous
Salary to Sous Interest to partner Share in income Total income	2,000 5,175 7,175(g)	1,600 3,450 5,050(h)	10,000 850 1,725 2,575(i)

End of year capital balances

particulars	Chief	Chef	Sous
Opening balance Income Drawings Additional capital Closing balance	50,000 7,175 -10,000 2,825 50,000(j)	40,000 5,050 -16,000 10,950 40,000(k)	20,000 2,575 -6,000 3,425 20,000(l)