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New Member
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Aug 12, 2009, 08:44 AM
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Ending Capital Balances
James, Keller and Rivers have the following capital balances; $48,000, $70,000, $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?
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Senior Member
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Aug 12, 2009, 09:36 AM
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The question is incomplete. What is the accounting period?
Please post your answer for correction.
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New Member
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Aug 12, 2009, 09:48 AM
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That is exactly how the question is posted on the hw. I know that it has to be set up like...
James Keller Rivers
48,000 70,000 90,000
(12,000) (12,000) (12,000)
And so on with the rest of the numbers in the problem... It says nothing about which accounting period. How would you solve it with what is given?
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Senior Member
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Aug 12, 2009, 10:42 AM
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Accounting period is necessary. I meant when does the accounting year end?
If we assume December 31, the James' capital was 48,000 for 5 months and 60,000 for 7 months. Therefore the weighted average capital of James will be 48,000 x 5 = 240,000 plus 60,000 x 7 = 420,000 making a total of 660,000 which when divided by 12 will give you 55,000. The balances of other partners will remain the same.
Profit for the year... 30,000
Less: Interest on capital
James 55,000 x 8%
Kellers 70,000 x 8%
Rivers 90,000 x 8%
Less; Partners' Salaries
James 13,000
Kellers 15,000
Rivers 20,000
Balance available for distribution
Distribute this balance in their profit sharing ratios of 20, 30 and 50%
Ignore drawings in the above calculations
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