A partnership begins its first year of operations with the following capital balances:Allegan, Capital$ 110,000Berrien, Capital80,000Kent, Capital110,000According to the articles of partnership, all profits will be assigned as follows:Allegan will be awarded an annual salary of $20,000 with $10,000 assigned to Kent.The partners will be attributed interest equal to 10 percent of the capital balance as of the first day of the year.The remainder will be assigned on a 5:2:3 basis, respectively.Each partner is allowed to withdraw up to $10,000 per year.The net loss for the first year of operations is $20,000, and net income for the subsequent year is $40,000. Each partner withdraws the maximum amount from the business each period.Required:Prepare schedules that compute the balances in each partner's capital account at the end of each of the first two years of partnership operations.

First YearInterest on Equity AlleganBerrienKentCapital balances$110,000$80,000$110,000Multiplied by:…

Answered: A partnership begins its first year of…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter15: Partnership Accounting

Section: Chapter Questions

Problem 1PA: The partnership of Tatum and Brook shares profits and losses in a 60:40 ratio respectively after...

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Question

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

Allegan, Capital	$ 110,000
Berrien, Capital	80,000
Kent, Capital	110,000

According to the articles of partnership, all profits will be assigned as follows:

Allegan will be awarded an annual salary of $20,000 with $10,000 assigned to Kent.
The partners will be attributed interest equal to 10 percent of the capital balance as of the first day of the year.
The remainder will be assigned on a 5:2:3 basis, respectively.
Each partner is allowed to withdraw up to $10,000 per year.

The net loss for the first year of operations is $20,000, and net income for the subsequent year is $40,000. Each partner withdraws the maximum amount from the business each period.

Required:

Prepare schedules that compute the balances in each partner's capital account at the end of each of the first two years of partnership operations.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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