Partner A first contributed $20,000 of capital into an existing partnership on February 1, 2008. On June 1, 2008, the partner contributed another $20,000. On September 1, 2008, the partner withdrew $15,000 from the partnership. Withdrawals in excess of $5,000 are charged to the partner's capital account. The partnership's fiscal year end is December 31. The annual weighted-average capital balance is $25,000 b. $26,667 $28,334 d. $30,000 a. с.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is 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, drawings of a partner, etc.
![### Understanding Weighted-Average Capital Balance in Partnerships
**Scenario:**
- Partner A first contributed $20,000 of capital into an existing partnership on February 1, 2008.
- On June 1, 2008, the partner contributed another $20,000.
- On September 1, 2008, the partner withdrew $15,000 from the partnership.
- Withdrawals in excess of $5,000 are charged to the partner's capital account.
- The partnership's fiscal year-end is December 31.
**Objective:**
Calculate the annual weighted-average capital balance for Partner A.
#### Calculation Steps:
1. **Initial Contribution:**
- $20,000 on February 1, 2008, remains in the partnership for 11 months (February to December).
2. **Second Contribution:**
- Additional $20,000 on June 1, 2008, remains for 7 months (June to December).
3. **Withdrawal:**
- $15,000 withdrawal on September 1, 2008, out of which only $5,000 (excess withdrawals) is considered, remaining for 4 months (September to December).
#### Weighting Each Contribution and Withdrawal:
1. **Initial Contribution:**
\[
20,000 \times \frac{11}{12} = 18,333.33
\]
2. **Second Contribution:**
\[
20,000 \times \frac{7}{12} = 11,666.67
\]
3. **Withdrawal:**
\[
15,000 \times \frac{4}{12} = 5,000
\]
#### Summing Weighted Averages:
\[
18,333.33 + 11,666.67 - 5,000 = 25,000
\]
Therefore, the annual weighted-average capital balance for Partner A is:
**Answer:**
- (a) $25,000
**Explanation:**
The calculation helps understand how different contributions over time affect the overall capital in a partnership. This concept is pivotal in financial planning and analysis within partnership structures.
Use this case study to deepen your understanding of partnership capital accounts and to practice similar problems for proficiency.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F785c4afc-2789-44b4-963e-414c136d4979%2Fd98584b5-ef74-4997-9c8d-e5d58806d89a%2Fpjuj1j7_processed.jpeg&w=3840&q=75)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
