Question

In: Accounting

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000Eaton,...

A partnership began its first year of operations with the following capital balances:

Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.

21. What was Eaton's total share of net loss for the first year?

A. $3,900 loss.
B. $11,700 loss.
C. $10,400 loss.
D. $24,700 loss.
E. $9,100 loss.

22. What was the balance in Young's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.

Solutions

Expert Solution

Salary Interest @ 10% Total Credits Sharing Ratio Withdrawal
Young, Capital $143,000 26000 14300 40300 5 13000
Eaton, Capital $104,000 10400 10400 2 13000
Thurman, Capital $143,000 13000 14300 27300 3 13000
39000 39000 78000
First Year net loss ($26,000)
Add: addl loss ($78,000)
Total Loss ($104,000)
Loss distribution as per ratio Loss Credits Net Loss Capital balance Withdrawal Net capital balance
Young-5 -52000 40300 -11700 $143,000 -13000 118300
Eaton-2 -20800 10400 -10400 $104,000 -13000 80600
Thurman-3 -31200 27300 -3900 $143,000 -13000 126100

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