Question

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

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:

Purkerson $ 66,000
Smith 46,000
Traynor 20,000

Due to a cash shortage, Purkerson invests an additional $10,000 in the business on April 1, 2018.

Each partner is allowed to withdraw $600 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, $12,000; Smith, $28,000; and Traynor, $8,000.
  • Each partner is credited with interest equal to 10 percent of the average monthly capital balance for the year without regard for normal drawings.
  • Any remaining profit or loss is allocated 2:2:6 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $42,000. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Ending Capital Balances for:

Purkerson

Smith

Traynor

Homework Answers

Answer #1
Allocation of Income
Purkerson Smitth traynor Total
Net Income 42,000
Compensation allowance 12000 28000 8000 -48000
Remaining loss -6000
Interest allowance 7350 4600 2000 -13950
Remaining loss -19950
Share of Loss in 2:2:6 -3990 -3990 -11970 19950
Share of Income/(Loss) 15360 28610 -1970 0
Ending balance of Capital
Purkerson Smitth traynor Total
Beginning balance of capital 66,000 46000 20000 132000
Add: Additional capital introduced 10,000 10000
Add: Share of income 15,360 28610 -1970 42000
Less: Withdrwals -7,200 -7,200 -7200 -21600
Ending balance of Capital 84,160 67410 10830 162400
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