Question

Able, Baker, and Collins formed a partnership on January 1, 2016, with investments of $200,000, $250,000, and $350,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $25,000 to Able, $20,000 to Baker and $15,000 to Collins, and (3) sharing the remainder of the income or loss in a ratio of 25% for Able, and 25% for Baker and 50% for Collins. Partnership net income was $200,000 in 2016. Each partner withdrew $1,000 for personal use every month during 2016.

Set up beginning Partner Capital accounts as of 1/1/2016
Distribute 2016 income to the partners
Determine Partner Capital Accounts as of 12/31/2016

Answer 1

	Able	Baker	Collins	Balance
Net Income				$200,000
Interest 10%	20000	25000	35000	$145,000
	(200000*10%)	(250000*10%)	(350000*10%)
Salaries	$25,000	$20,000	$15,000	$85,000
Remaing profit in % of $85000 (25%:25%:50%)	$21,250	$21,250.00	$42,500
Able's Capital
		Beg Balance	$0
		Cash	200000
		Interest on capital	20000
		Salaries	$25,000
		Share of profit	$21,250
		ending balance	$266,250
Baker's Capital
		Beg Balance	$0
		Cash	250000
		Interest on capital	25000
		Salaries	$20,000
		Share of profit	$21,250
		ending balance	$316,250
Collin's Capital
		Beg Balance	$0
		Cash	350000
		Interest on capital	35000
		Salaries	$15,000
		Share of profit	$42,500
		ending balance	$442,500