Question

A partnership begins its first year with the following capital balances

Alfred, Capital	$	36,000
Bernard, Capital		46,000
Collins, Capital		56,000

The articles of partnership stipulate that profits and losses be assigned in the following manner:

Each partner is allocated interest equal to 8 percent of the beginning capital balance.

Bernard is allocated compensation of $16,000 per year.

Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.

Each partner is allowed to withdraw up to $5,000 cash per year.

Assuming that the net income is $46,000 and that each partner withdraws the maximum amount allowed, what is the balance in Collins capital account at the end of that year?

Multiple Choice

A. $57,376

B. $68,064

C. $63,064

D. $60,480

Answer 1

			Alferd	Bernard	collins	total
interest on capital 8%			2880	3680	4480	11040
compensation				16,000		16000
total			2880	19680	4480	27040
		thus remaining income = 46000-27040
				18960
net income in ratio of 3:3:4			5688	5,688	7584
			Alferd	Bernard	collins	total
opening balance			36,000	46,000	56,000	138,000
interest on capital 8%			2880	3680	4480	11040
compensation				16,000		16000
net income			5688	5688	7584	18960
withdrawals			-5,000	-5,000	-5,000	-15,000
closing balance			39,568	66,368	63,064	169,000
	answer	option c)	$63,064