Question

Norr and Caylor established a partnership on January 1, 2018. Norr invested cash of $100,000 and Caylor invested $30,000 in Cash and equipment with a book value of $40,000 and fair value of $50,000. for both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses: -12% interest on the yearly beginning capital balance -$10 per hours of work that can be billed to the partnership's clients -the remainder divided in a 3:2 ration The Articless of partnership specified that each partner should withdraw no more than $1,000 per month or $12,000 per year. For 2018, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. Each partner withdrew $1,000 per month throughout 2018 amounting to $12,000 per year.

1) Determine the amount of net income allocated to each partner for 2018

. 2) Determine the balance in both capital accounts at the end of 2018.

Answer 1

When the partner brings equipment, the fair value needs to be considered. Interest is also to be levied in the fair value balances.

a.

Particulars	Norr	Caylor	Total
Interest	12000 (100,000*12%)	9600 (30,000+50,000)*12%	21600
Compensation	10,000 (1000*10)	14000 (1400*10)	24000
Subtotals	22000	23,600	45,600
Allocation of remainder (3:2 ratio)	14,640	9,760	24,400* (70,000-45,600)
Totals	36,640	33,360	70,000

*The total 70,000 is already given . 24,400 is the difference and is to be shared in the ratio 3:2.

b.

Particulars	Norr	Caylor
Beginning capital balances	100,000	80,000
Share of income	36,640	33,360
Withdrawals	(12,000)	(12,000)
Ending capital balances	124,640	101,360