Question

A partnership begins its first year with the following capital balances: Alfred, Capital $ 48,000 Bernard, Capital 58,000 Collins, Capital 68,000 The articles of partnership stipulate that profits and losses be assigned in the following manner: Each partner is allocated interest equal to 10 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 $4,000 cash per year. Assuming that the net income is $58,000 and that each partner withdraws the maximum amount allowed, what is the balance in Collins capital account at the end of that year

Answer 1

The balance in Collins capital account at the end of that year is:

$80,640.

Step-by-step explanation:

a) Data and Calculations:

Alfred Bernard Collins Total

Capital balances $48,000 $58,000 $68,000 $174,000

Profit sharing: $58,000

Interest on capital (10%) $4,800 $5,800 $6,800 ($17,400)

Compensation 16,000 ($16,000)

Allocation of balance 7,380 7,380 9,840 ($24,600)

Drawings (4,000) (4,000) (4,000) ($12,000)

Balances $56,180 $83,180 $80,640