1. The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business’s profit or loss in the following sequence:
• Jones, the managing partner, receives a bonus equal to 20 percent of the business’s profit.
• Each partner receives 15 percent interest on average capital investment.
• Any residual profit or loss is divided equally.
The average capital investments for 2015 were as follows:
How much of the $90,000 partnership profit for 2015 should be assigned to each partner?
2. Purkerson, Smith, and Traynor have operated a bookstore for a number of years as a partnership. At the beginning of 2015, capital balances were as follows:
LO 14-4, 14-5, 14-6
Due to a cash shortage, Purkerson invests an additional $8,000 in the business on April 1, 2015.
Each partner is allowed to withdraw $1,000 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, $18,000; Smith, $25,000; and Traynor, $8,000.
• 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 4:2:4 to Purkerson, Smith, and Traynor, respectively. The net income for 2015 is $23,600. Each partner withdraws the allotted amount each month.
What are the ending capital balances for 2015?
3. On January 1, 2014, the dental partnership of Left, Center, and Right was formed when the partners contributed $20,000, $60,000, and $50,000, respectively. Over the next three years, the business reported net income and (loss) as follows:
LO 14-4, 14-5, 14-6
During this period, each partner withdrew cash of $10,000 per year. Right invested an additional $12,000 in cash on February 9, 2015.
At the time that the partnership was created, the three partners agreed to allocate all profits and losses according to a specified plan written as follows:
• Each partner is entitled to interest computed at the rate of 12 percent per year based on the individual capital balances at the beginning of that year.
• Because of prior work experience, Left is entitled to an annual salary allowance of $12,000, and Center is credited with $8,000 per year.
• Any remaining profit will be split as follows: Left, 20 percent; Center, 40 percent; and Right, 40 percent. If a loss remains, the balance will be allocated: Left, 30 percent; Center, 50 percent; and Right, 20 percent.
Determine the ending capital balance for each partner as of the end of each of these three years.