Question

Alpha, Beta, and Gamma established a partnership. The partnership rules state that income will be distributed by:1) Alpha receives $12,000 salary (2) each partner receives 7% interest on average capital balances (3) remaining income is distributed 1:2:1 (Alpha, Beta, Gamma). The amount draw exceeds income for any partner must be contributed back to the partnership

The year begins with capital as follows: Alpha = $50,000, Beta = $75,000, Gamma = $50,000. During the year, Alpha had draw of $10,000 taken July 1, Gamma took draw of $5,000 on May 1 and another $5,000 on September 1, and Beta took $12,000 draw on January 1.

There are two independent situations. In situation #1, the partnership earns $88,002. In situation #2, the partnership earns $23,000. 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?

	Parent Corp	Sub Corp
Cash	$ 90,000	$ 30,000
A/R	480,000	100,000
Inventory	140,000	80,000
Patent	0	150,000
PP&E	1,230,000	350,000
A/D	(200,000)	(50,000)
Investment in sub	480,000	0
Total Assets	$2,220,000	$660,000
A/P	$370,000	$  85,000
Bonds Payable	190,000	75,000
Common Stock	425,000	210,000
Retained Earnings	1,235,000	290,000
Total Liabilities & Equity	$2,220,000	$660,000

Answer 1

The capital balances as per the given 2 situations are as follows: