Dopey, Doc and Grumpy are partners in a successful New York restaurant. At the e

Question

Dopey, Doc and Grumpy are partners in a successful New York restaurant. At the end of 2015 they had the following capital accounts: Dopey $400,000 Doc: $800,000 Grumpy $100,000 Because of his chef skills, Grumpy receives a salary of $75,000 per year; because of his excellent communication skills, the director of marketing, Dopey receives a salary of $50,000 per year. Partners receive 10% interest on their beginning capital balances. Partners share profits: Dopey 30%; Doc 40%; Grumpy 30%; and they share losses equally. Information for 2016, 2017 and 2018 are as follows: 2016 2017 2018 Sales 900,000 950,000 600,000 Cogs 300,000 400,000 500,000 Doc takes out $1000 per month for singing lessons. Both Dopey and Grumpy take their salaries out of the partnership. All 3 partners leave their interest payments in the partnership. Required: a) determine the allocation of income to the partners in 2016, 2017 and 2018. c) Determine the partnership capital account balances on 12/31/16; 12/31/ 17 and 12/31/18

Explanation / Answer

Dopey, Doc and Grumpy All Amounts in $ Distribution of Profits per year from 2016 to 2018 2016 2017 2018 Sales 900000 950000 600000 Cost of Goods Sold 300000 400000 500000 Contribution Margin 600000 550000 100000 Salaries to Partners Grumpy 75000 75000 75000 Dopey 50000 50000 50000 Interest on Capital Accounts @ 10% Dopey 40000 40000 40000 Doc 80000 80000 80000 Grumpy 10000 10000 10000 Net Income distributed 345000 295000 -155000 Income/(Loss) Distribution Dopey 103500 88500 -51666.7 Doc 138000 118000 -51666.7 Grumpy 103500 88500 -51666.7 Partnership Capital Account Balances - Yearwise 2016 2017 2018 Dopey Doc Grumpy Dopey Doc Grumpy Dopey Doc Grumpy Opening Capital Balance 400000 800000 100000 453500 926000 128500 492000 1032000 142000 Income/(Loss) for the year 103500 138000 103500 88500 118000 88500 -51666.7 -51666.7 -51666.7 Drawings for the year 50000 12000 75000 50000 12000 75000 50000 12000 75000 Closing Capital Balance 453500 926000 128500 492000 1032000 142000 390333.3 968333.3 15333.33

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