Question

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	$	72,000
Smith		52,000
Traynor		20,000

Due to a cash shortage, Purkerson invests an additional $12,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $900 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, $15,000; Smith, $25,000; and Traynor, $8,000.
• 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 5:2:3 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $30,000. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Answer 1

	Statement of Partner's capital
		Pukerson	Smith	Traynor	Total
	Beginning balances, Jan 2018	$     72,000	$ 52,000	$   20,000	$ 1,44,000
	Additional Contribution	$     12,000	$           -	$            -	$     12,000
	Net Income	$       6,900	$ 25,680	$   -2,580	$     30,000
	Drawings ($900 X 12)	$   -10,800	$-10,800	$ -10,800	$   -32,400
	Ending Capital Balance, Dec 2018	$     80,100	$ 66,880	$     6,620	$ 1,53,600
	Workings:
	Allocation of Net Income:
		Pukerson	Smith	Traynor	Total
	Net Income				$     30,000
	Interest	$     16,200	$ 10,400	$     4,000	$   -30,600
	Salary	$     15,000	$ 25,000	$     8,000	$   -48,000
	Remainder to allocate				$   -48,600
	(5:2:3)	$   -24,300	$   -9,720	$ -14,580	$     48,600
	Total Net Income	$       6,900	$ 25,680	$   -2,580	$              -
	Computation of Interest allocation:
		Pukerson	Smith	Traynor
	Balance (Jan 1 - Apr 1) [$72000 X 3]	$ 2,16,000	-	-
	Balance (Apr 1 - Dec 31) [($72,000 + $12,000) X 9]	$ 7,56,000	-	-
(a)	Total	$ 9,72,000	-	-
(b)	Number of months	12	-	-
(a) / (b) = (c)	Average monthly capital balance	$     81,000	$ 52,000	$   20,000
(d)	Interest rate	20%	20%	20%
(c) X (d)	Interest allocated	$     16,200	$ 10,400	$     4,000