Question

A partnership begins its first year with the following capital balances:

Alfred, Capital	$	32,000
Bernard, Capital		42,000
Collins, Capital		52,000

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

• Each partner is allocated interest equal to 6 percent of the beginning capital balance.
• Bernard is allocated compensation of $12,000 per year.
• Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.
• Each partner is allowed to withdraw up to $4,000 cash per year.

Assuming that the net income is $42,000 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

• $60,096

• $53,364

• $64,096

• $55,120

Answer 1

Solution:

Schedule of Divison of income
Particulars	Alfred	Bernard	Collins	Total
Salary Compensation		$12,000.00		$12,000.00
Interest Allowance	$1,920.00	$2,520.00	$3,120.00	$7,560.00
Remaining Income (42,000 - $12,000 - $7,560 = $22,440)	$6,732.00	$6,732.00	$8,976.00	$22,440.00
Net Income	$8,652.00	$21,252.00	$12,096.00	$42,000.00

balance in Collins capital account at the end of that year = Beginning captial + Share of income - Withdrawl

= $52,000 + $12,096 - $4,000 = $60,096

Hence first option is correct.