Question

Please explain the answer. Goodman, Pinkman, and White formed a partnership on January 1, 2020, and...

Please explain the answer.

Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner’s beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021.

What was White’s capital balance at the end of 2020?

A) $327,000. B) $191,000. C) $345,000. D) $309,000. E) $259,000.

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Answer #1

correct option is "D" -309000

White's capital
Beginning capital 250000
Add:Share in net income 77000
Less:Drawings -1500*12= -18000
Balance at end of 2020 309000

Working :

Share in net income :

Goodman Pinkman White Total
Interest on capital 125000*10%=12500 175000*10%=17500 250000*10%=25000 55000
Salary allowance 15000 15000
Remaining income [200000-55000-15000=130000] 130000*20%=26000 130000*40%=52000 52000 130000
Total share in net income for year 2020 38500 84500 77000 200000
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