Purkerson, Smith, and Traynor have operated a bookstore for a number of years as

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:

Due to a cash shortage, Purkerson invests an additional $6,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $700 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 4:2:4 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $29,000. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Explanation / Answer

Allocation of Income Purkerson smith Traynor Total Salary $15,000 $25,000 $8,000 $48,000 Interest 20100 15200 6000 $41,300 Remaining income/(loss) allocated in 4:2:4 ratio -24120 -12060 -24120 ($60,300) (29000-48000-41300) Total $10,980 $28,140 ($10,120) $29,000 Calculation of Interest Purkerson Smith Traynor From Jan 1-April 1-96000*3 288000 From April 1-31 dec 102000*9 918000 Total 1206000 912000 360000 (76000*12) (30000*12) No. of months 12 12 12 Avg monthly capital balance 100500 76000 30000 Interest rate 20% 20% 20% Interest 20100 15200 6000 Purkerson Smith Traynor Statement of Partner capital Beginning Balance $96,000 76000 30000 Addional capital contributed $6,000 0 0 Income/(loss) $10,980 $28,140 ($10,120) drawings (700*12) -8400 -8400 -8400 Ending capital balance $104,580 $95,740 $11,480 answer Purkerson $104,580 Smith $95,740 Traynor $11,480 If any doubt please comment. If satisfied you can rate

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