Question
Boswell and Johnson form a partnership on May 1, 2008. Boswell contributes cash of $50,000; Johnson conveys title to the following properties to the partnership:
Boswell and Johnson form a partnership on May 1, 2008. Boswell contributes cash of $50,000; Johnson conveys title to the following properties to the partnership:
Land $15,000 (Book Value) $28,000 (Fair Value)
Building and Equipment $35,000 (Book value) $36,000 (Fair Value)
The partners agree to start their partnership with equal capital balances. No goodwill is to be recognized.
According to the articles of partnership written by the partners, profits and losses are allocated based on the
following formula:
- Boswell receives a compensation allowance of $1,000 per month.
- All remaining profits and losses are split 60:40 to Johnson and Boswell, respectively.
- Each partner can make annual cash drwaings of $5,000 beginning in 2009.
Net income of $11,000 is earned by the business during 2008.
Walpole is invited to join the partnership on January 1, 2009. Because of her business reputation and financial expertise, she is given a 40 percent interest for $54,000 cash. The bonus approach is used to record this investment, made directly to the business. The articles of partnership are amended to give Walpole a $2,000 compensation allowance per month and an annual cash drawing of $10,000. Remaining profits are not allocated:
Johnson 48%
Boswell 12%
Walpole 40 %
All drawings are taken by the partners during 2009. At year end, the partnership reports an earned net income of $28,000.
On January 1, 2010, Pope (previously a partnership employee) is admitted into the partnership. Each partner transfers 10 percent
to Pope who makes the following payments directly to the partners:
Johnson $5,672
Boswell $7,880
Walpole $8,688
Once again, the articles of partnership must be amended to allow for the entrance of the new partner. This change
entitles Pope to a compensation allowance of $800 per month and an annual drawing of $4,000. Profits and losses
are now assigned as follows:
Johnson 40.5%
Boswell 13.5 %
Walpole 36 %
Pope 10 %
For the year of 2010, the partnership earned a profit of $46,000, and each partner withdrew the allowed amount of cash.
Determine the capital balances for the individual partners as of the end of each year: 2008 through 2010.
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