Question
In: Accounting
Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership....
Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2018, capital balances were as follows:
| Purkerson | $ | 82,000 |
| Smith | 62,000 | |
| Traynor | 30,000 | |
Due to a cash shortage, Purkerson invests an additional $6,000 in the business on April 1, 2018.
Each partner is allowed to withdraw $700 cash each month.
The partners have used the same method of allocating profits and losses since the business's inception:
- Each partner is given the following compensation allowance for work done in the business: Purkerson, $14,000; Smith, $24,000; and Traynor, $4,000.
- Each partner is credited with interest equal to 20 percent of the average monthly capital balance for the year without regard for normal drawings.
- Any remaining profit or loss is allocated 3:2:5 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $24,000. Each partner withdraws the allotted amount each month.
What are the ending capital balances for Purkerson, Smith, and Traynor for 2018?
Solutions
Expert Solution
| Particular | Purkerson | Smith | Traynor | Particular | Purkerson | Smith | Traynor |
| Withdrawal (Drawings) ($700*12) | $8,400 | $8,400 | $8,400 | Opening Balance | $82,000 | $62,000 | $30,000 |
| Withdrawal (Drawings) (3:2:5)** | $16,710 | $11,140 | $27,850 | Additional Capital | $6,000 | ||
| Compensation Allowance | $14,000 | $24,000 | $4,000 | ||||
| Ending Balance | $1,10,900 | $90,000 | $31,600 | Interest on Capital* | $17,300 | $12,400 | $6,000 |
| Total Balance | $1,19,300 | $98,400 | $40,000 | Total Balance | $1,19,300 | $98,400 | $40,000 |
*Calculation of interest on capital to Purkerson
Initial capital = $82,000
Additional capital bought in on April 1, 2018 = $6,000
Effective monthly capital = $82,000 * (12/12) + $6,000 * (9/12)
= $82,000 + $4,500 =$86,500
Interest @ 20% = $86,500 * 20% = $17,300
**Calculation of withdrawal amount in ratio of 3 : 2 : 5
Withdrawal amount = Compensation Allowance + Interest on Capital - Net Income
= ($14,000 + $24,000 + $6,000) + ($17,300 + $12,400 + $6,000) - $24,000
= $55,700
Withdrawal by Purkerson = $55,700 * (3/10) = $16,710
Withdrawal by Smith = $55,700 * (2/10) = $11,140
Withdrawal by Traynor = $55,700 * (5/10) = $27,850
ekkarill92 answered 1 year agoRelated Solutions
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in the business on April 1, 2018.
Each partner is allowed to withdraw $700 cash each month.
The partners have used the same method of allocating profits and
losses since the business's inception:
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number of years as a partnership. At the beginning of 2018, capital
balances were as follows:
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$
60,000
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Due to a cash shortage, Purkerson invests an additional $8,000
in the business on April 1, 2018.
Each partner is allowed to withdraw $1,000 cash each month.
The partners have used the same method of allocating profits and
losses since the business's inception:
Each partner is given...
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The partners have used the same method of allocating profits and
losses since the business's inception:
Each partner is given the following compensation allowance for work
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