Question

James, Keller, and Rivers have the following capital balances; $48,000, $70,000 and $90,000 respectively. Because of a cash shortage James invests an additional $12,000 on June 1st. Each partner withdraws $1,000 per month. James, Keller, and Rivers receive a salary of $13,000, $15,000 and $20,000, respectively, for work done during the year. Each partner receives interest of 8% on their weighted average capital balance without regard to normal drawings. Any remaining profits are split 20%, 30%, and 50% respectively. The net income for the year is $30,000. What are the ending capital balances for each partner?

Answer 1

Answer:

Capital balances of each partners

                                 James          Keller             River

opening balance      $48,000      $70,000      $90,000

Additional Capital      12,000

Salary                        13,000          15,000         20,000

Interest on capital     4,400            5,600         7200

Drawings                  (12,000)          (12,000)      (12,000)

share of loss            (7040)             (10560)      (17600)

closing balance         58,360           68,040     87,600

Explanation:

1. Interest on capital is based on weighted average capital balance without regard to normal drawings

James    =( 8% * 48,000) + ( 8%* 12,000 * 7/12) = $4,400

on the additional capital invested by James, interest on capital will be calculated for 7months

Keller =  8% * 70,000  =  $5,600

River =  8% * 90,000 = 7200

Appropriation

Net income                                                             $30,000

Interest on capital(4400 + 5600+7200) 17,200

salary (13,000+15000+20000)               48,000     (65,200)

share of loss :     James                          7,040

                           keller                          10,560

                          River                            17600           35,200