On January 1, 2020, the dental partnership of Angela, Diaz, and Krause was formed when the partners contributed $48,000, $75,000, and $78,000, respectively. Over the next three years, the business reported net income and (loss) as follows: 2020 $ 88,000 2021 60,000 2022 (43,000 ) During this period, each partner withdrew cash of $20,000 per year. Krause invested an additional $5,000 in cash on February 9, 2021. 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 10 percent per year based on the individual capital balances at the beginning of that year. Because of prior work experience, Angela is entitled to an annual salary allowance of $14,500 per year, and Diaz is entitled to an annual salary allowance of $10,800 per year. Any remaining profit will be split as follows: Angela, 20 percent; Diaz, 35 percent; and Krause, 45 percent. If a net loss remains after the initial allocations to the partners, the balance will be allocated: Angela, 30 percent; Diaz, 45 percent; and Krause, 25 percent. Prepare a schedule that determines the ending capital balance for each partner as of the end of each of these three years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 2020, the dental partnership of Angela, Diaz, and Krause was formed when the partners contributed $48,000, $75,000, and $78,000, respectively. Over the next three years, the business reported net income and (loss) as follows:


2020	$	88,000
2021		60,000
2022		(43,000	)

During this period, each partner withdrew cash of $20,000 per year. Krause invested an additional $5,000 in cash on February 9, 2021.

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 10 percent per year based on the individual capital balances at the beginning of that year.
Because of prior work experience, Angela is entitled to an annual salary allowance of $14,500 per year, and Diaz is entitled to an annual salary allowance of $10,800 per year.
Any remaining profit will be split as follows: Angela, 20 percent; Diaz, 35 percent; and Krause, 45 percent. If a net loss remains after the initial allocations to the partners, the balance will be allocated: Angela, 30 percent; Diaz, 45 percent; and Krause, 25 percent.

Prepare a schedule that determines the ending capital balance for each partner as of the end of each of these three years.

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