A partnership begins its first year of operations with the following capital bal
ID: 2391101 • Letter: A
Question
A partnership begins its first year of operations with the following capital balances:
According to the articles of partnership, all profits will be assigned as follows:
Winston will be awarded an annual salary of $16,000 with $8,000 assigned to Salem.
The partners will be attributed interest equal to 10 percent of the capital balance as of the first day of the year.
The remainder will be assigned on a 5:2:3 basis, respectively.
Each partner is allowed to withdraw up to $10,000 per year.
The net loss for the first year of operations is $26,000 and net income for the subsequent year is $28,000. Each partner withdraws the maximum amount from the business each period. What is the balance in Winston’s capital account at the end of the second year?
Multiple Choice
a. $56,710
b. $61,810
c. $51,810
d. $46,100
Winston, Capital $ 68,000 Durham, Capital 58,000 Salem, Capital 68,000Explanation / Answer
Winston Capital
Durham Capital
Salem Capital
Opening Capital Year 1
$ 68,000.00
$ 58,000.00
$ 68,000.00
Add: Interest On capital
$ 6,800.00
$ 5,800.00
$ 6,800.00
Add: Salary
$ 16,000.00
$ 8,000.00
Less: Drawings
$ (10,000.00)
$ (10,000.00)
$ (10,000.00)
Less: Loss Share
$ (34,700.00)
$ (13,880.00)
$ (20,820.00)
Closing Balance Of year 1
$ 46,100.00
$ 39,920.00
$ 51,980.00
Opening Balance of Year 1
$ 46,100.00
$ 39,920.00
$ 51,980.00
Add: Interest On capital
$ 4,610.00
$ 3,992.00
$ 5,198.00
less: Drawings
$ (10,000.00)
$ (10,000.00)
$ (10,000.00)
Add: Salary
$ 16,000.00
$ 8,000.00
Less: Loss Share
$ (4,900.00)
$ (1,960.00)
$ (2,940.00)
Closing balance of Year 2
$ 51,810.00
$ 31,952.00
$ 52,238.00
Loss For Year 1
Operating Loss
$ 26,000.00
Salary
$ 24,000.00
Interest on Capital
$ 19,400.00
Total Loss of Year 1 To be distributed to Partners
$ 69,400.00
Loss For Year 2
Operating Profit
$ 28,000.00
Salary
$ (24,000.00)
Interest on Capital
$ (13,800.00)
Total Loss of Year 1 To be distributed to Partners
$ (9,800.00)
Correct answer (C ) $ 51810
Winston Capital
Durham Capital
Salem Capital
Opening Capital Year 1
$ 68,000.00
$ 58,000.00
$ 68,000.00
Add: Interest On capital
$ 6,800.00
$ 5,800.00
$ 6,800.00
Add: Salary
$ 16,000.00
$ 8,000.00
Less: Drawings
$ (10,000.00)
$ (10,000.00)
$ (10,000.00)
Less: Loss Share
$ (34,700.00)
$ (13,880.00)
$ (20,820.00)
Closing Balance Of year 1
$ 46,100.00
$ 39,920.00
$ 51,980.00
Opening Balance of Year 1
$ 46,100.00
$ 39,920.00
$ 51,980.00
Add: Interest On capital
$ 4,610.00
$ 3,992.00
$ 5,198.00
less: Drawings
$ (10,000.00)
$ (10,000.00)
$ (10,000.00)
Add: Salary
$ 16,000.00
$ 8,000.00
Less: Loss Share
$ (4,900.00)
$ (1,960.00)
$ (2,940.00)
Closing balance of Year 2
$ 51,810.00
$ 31,952.00
$ 52,238.00
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