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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?

Solutions

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

ekkarill92 answered 2 years ago
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