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 $8,000 in the business on April 1, 2018.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 2018 is $23,600. Each partner withdraws the allotted amount each month.What are the ending capital balances for 2018? Purkerson..$60,000Smith....Traynor20,000

In a partnership, two or more parties agree to operate and manage a business and share the profits…

Answered: Purkerson.. $60,000 Smith.... Traynor…

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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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 $8,000 in the business on April 1, 2018.

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 2018 is $23,600. Each partner withdraws the allotted amount each month.

What are the ending capital balances for 2018?

Purkerson..
$60,000
Smith....
Traynor
20,000

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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