Question

Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $62,000; Johnson conveys title to the following properties to the partnership:

	Book Value		Fair Value
Land	$	21,000	$	40,000
Building and equipment		41,000		48,000

The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized.

According to the articles of partnership written by the partners, profits and losses are allocated based on the following formula:

• Boswell receives a compensation allowance of $1,000 per month.
• All remaining profits and losses are split 60:40 to Johnson and Boswell, respectively.
• Each partner can make annual cash drawings of $6,000 beginning in 2017.

Net income of $17,000 is earned by the business during 2016.

Walpole is invited to join the partnership on January 1, 2017. Because of her business reputation and financial expertise, she is given a 40 percent interest for $66,000 cash. The bonus approach is used to record this investment, made directly to the business. The articles of partnership are amended to give Walpole a $3,000 compensation allowance per month and an annual cash drawing of $12,000. Remaining profits are now allocated:

Johnson	48	%
Boswell	12
Walpole	40

All drawings are taken by the partners during 2017. At year-end, the partnership reports an earned net income of $40,000.

On January 1, 2018, Pope (previously a partnership employee) is admitted into the partnership. Each partner transfers 10 percent to Pope, who makes the following payments directly to the partners:

Johnson	$	7,228
Boswell		10,848
Walpole		11,848

Once again, the articles of partnership must be amended to allow for the entrance of the new partner. This change entitles Pope to a compensation allowance of $800 per month and an annual drawing of $5,000. Profits and losses are now assigned as follows:

Johnson	42.0	%
Boswell	14.0
Walpole	34.0
Pope	10.0

For the year of 2018, the partnership earned a profit of $58,000, and each partner withdrew the allowed amount of cash.

Determine the capital balances for the individual partners as of the end of each year: 2016 through 2018.

Answer 1

Refer below images for the above asked questions, in a detailed way of solution.
Solution :- Alloca tion of Net income - 2016 particolays Johnson Boswell Toíal Net income salary(@ Months) $8000 (1o00 x 8) ($ 8000) Remaining income $ 9000 $3600 (40%-) $5400 (b1.) ($9000) TOTal allo cation > 9 5400 1 600 $0 S tatement of Partrers Capital December 31,2016 payticolars Boswell Johnson ToTal Beginning Balances ($150000 Invested capital splt evenly- asies) $75000 $ 150000 $75000 maricet value osed for allocahon (above) Net income $ 11600 $5400 ।२००० Drawings $0 Ending Balances > $ 167000 $ 80400 $86600

investment Walpote januavy 1, 2017 wal pde's $ 66000 investment total capital incveases to $ 233000 [ie $167000 t $66000]. walpde is (redited with a 401- preblem, the partmers - from Johnson (607.) interest (or) I 93200 According to bones fvem the the original Excess ।२+२०० is a of this { 1632o is allocated Baswell (40%-). amount and $ 1088 0 fvom wONking: calcolation of Er ce SS Amont wail pole's investment $66000 As per walpole's TOTal Capital $ 66000 $ 165000 401 $ 233000 Present toral Capira) $ 6 8000 Excess Capitol Excess Bunos [s6800X407] =$ 27200 Alloca tion of Net income - a017 Particolars Boswell John son walpote TOTal Net income $ 40 000 Salovs [Brocok12] [8 B000M2] 12000 $ 36000 48000) Remoinder to allocote : $( Bo00) (1960(124) ($384){121) (432cX401) $ Bo00 Toial allocotHon > $11040 ($ 3840) $ 32800

Statement of partrers Capita) Dece mber 31, 2017 Particolavs Boswell Johnson walpole ToTal Beginning Balancos walpole's contvibution $ 46 600 $ 80400 $167000 ($ 10880) ($ 16320) $93200 f 66000 Income alloca tron (abeve) $ 11040 ($3240) $ 32 800 $40000 Drawings (4 6000) (4 6000) (B12000) ২५०००) Ending Balances $1 14000 $54240 249000 280760 Admission of pope -Sanuary 1, a018 was made divectly to the Popes payment There Fore, neither goodwill pareners - need be recognized bonus In st ead, l01, of each caprtal Pope. above wil) balance Shown Joornal entsy to reclassitied woold be The re as follows: $ 8076 Capit al Ale r capital Boswell $ 5424 Johnson walpde To Pope Dr 41C Ale DY $11400 capital capital Alk $424900

Alocation of Net income 2018 particolars Beswell Johnson walpole pope TOTal Net income Salaxy $58000 $12000 $ 36000 $9600 ($ 57600) [91000X12] Remaining Net income $ 400 $56 Allocation $168 I 136 ($ 400) $40 [141, 421, 34t, 1o] $।२०56 $ 168 $36136 $964o $0 * Statement of partnership caprtal December 31, 2018 Boswell pasticolars John Son Walpote pope Tofal Begimning Balancy $ 80760 Admission et pape ($ 8076) 5424) $54240 $114000 $0 ६ २५१००० ($ 11400) $ 36136 २५१०० $0 Allocakon of $ 9640 $ 12056 $168 $58000 Net income ($1200) ($ 6000) (1600) ($ 29000) ($ Jo00) Drawings Ending balanee, $78740 $42984 $278000 $126736 $29s40