Answered Essay: ng of 2018, capital balances were as follows: Due to a cash shortage, Purkerson inv

e hmpaihnb.mncducation.corr tlow/connect.htm apter 9 homework Help Save& Exit Subn Check my wor 3 Problem 9-22 (LO 9-4, 9-5, 9-6) 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: ts Purkerson Smith Traynor $50, 000 36, 000 15, 000 elook Print Due to a cash shortage, Purkerson invests an additional $10,000 in the business on April 1, 2018. Each partner is allowed to withdraw $800 cash each month. The partners have used the same method of allocating profits and losses since the businesss inception: . Each partner is given the following compensation allowance for work done in the business: Purkerson, $13,000: Smith, $23,000 and Traynor, $6,000. 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 3:3:4 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $32,000 Each partner withdraws the allotted amount each month. What are the ending capital balances for 2018? < Prev 3017 Next > hp

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: Due to a cash shortage, Purkerson invests an additional $10,000 in the business on April 1, 2018. Each partner is allowed to withdraw $800 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, $13,000: Smith, $23,000: and Traynor, $6,000. 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 3: 3: 4 to Purkerson, Smith, and Traynor, respectively. The net income for 2018 is $32,000. Each partner withdraws the allotted amount each month. What are the ending capital balances for 2018?

Expert Answer

 

Solution

Interest on capital of Purkerson:

Capital balance from Jan 1 to April 1 =50,000×3 months=$150,000

Capital balance from April to Dec=60,000×9=$540,000

Total capital=$690,000

Average capital=$690,000/12=$57,500

Interest on capital=$57500×10%=$5,750

Allocation of income:

Purkerson Smith Traynor Total
Interest on capital $5,750 $3,600

(36000×10%=

$1,500

(15000×10%)

$10,850
Salary $13,000 $23,000 $6,000 $42,000
Remaining income (loss)[32000-10850-42000] (6,255) (6255) (8340) (20,850)
Total $12,495 $20,345 (840) $32,000

Capital balance:

Purkerson Smith Traynor
Opening capital $50,000 $36,000 $15,000
Add Additional capital $10,000
Add income $12,495 $20,345 (840)
Less drawings(800 per month) (9,600) (9,600) (9,600)
Ending capital balance $62,895 $46,745 $4,560
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