Question

Cheatem, Fleecem and Robbem are partners in a law fim. The partnership agreement states they will be allocated salaries of $30,000, $50,000 and $70,000 respectively. In addition, each will be paid interest of 10% on their beginning capital balances (listed below). Any excess or deficit will be shared at a ratio of 2:1:1. Beginning capital balances: $ Cheatem Fleecem Robbem 250,000 200,000 150,000 Instructions: a. b. Worksheet provided, calculate each partner's share of profits assuming that net income is $370,000 for the year. Based upon your answer in 1 above, compute Cheatem's ending capital balance if his drawing account had a balance of $140,000 for the year.

Answer 1

a.

Particulars	C	F	R	Total
Net Income				370,000
Allocated Salaries	30,000	50,000	70,000	(150,000)
Balance Income				220,000
Interest on Beginning Capital @ 10%	25,000	20,000	15,000	(60,000)
Balance Income				160,000
Share in the ratio 2:1:1	80,000	40,000	40,000	(160,000)
TOTAL	135,000	110,000	125,000	0

b.

Particulars	$
Beginning Capital Balance	250,000
Add: Salary Income	30,000
Add: Interest on Beginning Capital	30,000
Add: Share in Profits	80,000
Less: Drawings / Withdrawals	(140,000)
Ending Capital Balance	245,000