Question
In: Accounting
A partnership begins its first year of operations with the following capital balances: Winston, Capital $...
A partnership begins its first year of operations with the following capital balances:
Winston, Capital $ 64,000
Durham, Capital 54,000
Salem, Capital 64,000
According to the articles of partnership, all profits will be assigned as follows:
Winston will be awarded an annual salary of $12,000 with $6,000 assigned to Salem.
The partners will be attributed interest equal to 10 percent of the capital balance as of the first day of the year.
The remainder will be assigned on a 5:2:3 basis, respectively
. Each partner is allowed to withdraw up to $6,000 per year.
The net loss for the first year of operations is $24,000 and net income for the subsequent year is $26,000. Each partner withdraws the maximum amount from the business each period. What is the balance in Winston’s capital account at the end of the second year?
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Expert Solution
| Income Allocation of First year | |||||||
| Winston | Durham | Salem | Total | ||||
| Net Income | -24000.00 | ||||||
| salary allowance | 12,000 | 6000 | -18000.00 | ||||
| Remaining income | -42000.00 | ||||||
| Interest allowance | 6,400 | 5,400 | 6400 | -18200.00 | |||
| Remaining income | -60200.00 | ||||||
| Share in 5:2:3 | -30,100 | -12040 | -18060.00 | 60200.00 | |||
| Remaining income | 0.00 | ||||||
| Share of income | -11700 | -6640 | -5660 | ||||
| Capital balance at the end of Year-1 | |||||||
| Winston | Durham | Salem | Total | ||||
| Beginning | 64000 | 54000 | 64000 | 182000.00 | |||
| Less: Share of loss | -11700 | -6640 | -5,660 | -24000.00 | |||
| Less: Withdrawals | -6000 | -6000 | -6000 | -18,000 | |||
| Ending balance of Capital at Year-1 | 46300 | 41360 | 52340 | 140000.00 | |||
| Income Allocation of Second year | |||||||
| Winston | Durham | Salem | Total | ||||
| Net Income | 26000.00 | ||||||
| salary allowance | 12,000 | 6000 | -18000.00 | ||||
| Remaining income | 8000.00 | ||||||
| Interest allowance | 4,630 | 4,136 | 5234 | -14000.00 | |||
| Remaining income | -6000.00 | ||||||
| Share in 5:2:3 | -3,000 | -1200 | -1800.00 | 6000.00 | |||
| Remaining income | 0.00 | ||||||
| Share of income | 13630 | 2936 | 9434 | ||||
| Capital balance at the end of Year-2 | |||||||
| Winston | Durham | Salem | Total | ||||
| Beginning | 46300 | 41360 | 52340 | 140000.00 | |||
| Less: Share of loss | 13630 | 2936 | 9,434 | 26000.00 | |||
| Less: Withdrawals | -6000 | -6000 | -6000 | -18,000 | |||
| Ending balance of Capital at Year2 | 53930 | 38296 | 55774 | 148000.00 | |||
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