Question

A partnership begins its first year with the following capital balances: $ Alfred, Capital Bernard, Capital Collins, Capital 36.000 46,000 56,000 The articles of partnership stipulate that profits and losses be assigned in the following manner • Each partner is allocated interest equal to 8 percent of the beginning capital balance. • Bernard is allocated compensation of $16,000 per year. • Any remaining profits and losses are allocated on a 3.3.4 basis, respectively. • Each partner is allowed to withdraw up to $5,000 cash per year. Assuming that the net income is $46,000 and that each partner withdraws the maximum amount allowed, what is the balance in Collins capital account at the end of that year? O $63,064 $57,376 O $60,480 568,064

Answer 1

The correct answer is $63,064.

Supporting calculations:

	Alfred, Capital	Bernard, Capital	Collins, Capital	Total
Interest to the partners ($36,000*8/100); ($46,000*8/100); ($56,000*8/100)	$2,880	$3,680	$4,480	$11,040
Compensation		$16,000		$16,000
Allocation of net income ($46,000 - $11,040 - $16,000 = $18,960*3/10); ($18,960*3/10); ($18,960*4/10)	$5,688	$5,688	$7,584	$18,960
Total allocations to partners	$8,568	$25,368	$12,064	$46,000
Beginning capital balances	$36,000	$46,000	$56,000
Add: total allocation to partners	$8,568	$25,368	$12,064
Less: Total drawings	($5,000)	($5,000)	($5,000)
Ending capital balances	$39,568	$66,368	$63,064
Therefore, the ending capital balance of Collins, Capital is $63,064.