A partnership begins its first year of operations with the following capital bal

Question

A partnership begins its first year of operations with the following capital balances: Winston, Capital $ 66,000 Durham, Capital 56,000 Salem, Capital 66,000 According to the articles of partnership, all profits will be assigned as follows: Winston will be awarded an annual salary of $14,000 with $7,000 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 $7,000 per year. The net loss for the first year of operations is $26,000 and net income for the subsequent year is $27,000. 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?

Explanation / Answer

$ 93760 shall be the balance in Winston Capital Account at the end of year 2.

Particulars Winston Durham Salem Total Capital Introduced        66,000      56,000      66,000 1,88,000 Salary        14,000               -          7,000      21,000 Interest on Capital           6,600        5,600        6,600      18,800 Drawings         -7,000      -7,000       -7,000    -21,000 Loss       -13,000      -5,200       -7,800    -26,000 Closing Balance 1st Year        66,600      49,400      64,800 1,80,800 Opening Balance        66,600      49,400      64,800 1,80,800 Salary        14,000               -          7,000      21,000 Interest on Capital           6,660        4,940        6,480      18,080 Drawings         -7,000      -7,000       -7,000    -21,000 Profit 13,500.00 5,400.00 8,100.00      27,000 Closing Balance 2nd Year        93,760      52,740      79,380 2,25,880

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