Ex. 175

Cain, Foley, and Hardy formed a partnership on January 1, 2012. Cain invested $60,000, Foley $60,000 and Hardy $140,000. Cain will manage the store and work 40 hours per week in the store. Foley will work 20 hours per week in the store, and Hardy will not work. Each partner withdrew 40 percent of his income distribution during 2012. If there was no income distribution to a partner, there were no withdrawals of cash.

Instructions

Compute the partners' capital balances at the end of 2012 under the following independent conditions: (Hint: Use T accounts to determine each partner's capital balances.)

Ex. 175 (Cont.)

(1) Net income is $120,000 and the income ratio is Cain 40%, Foley 35%, and Hardy 25%.

(2) Net income is $125,000 and the partnership agreement only specifies a salary of $50,000 to Cain and $30,000 to Foley.

(3) Net income is $76,000 and the partnership agreement provides for (a) a salary of $40,000 to Cain and $40,000 to Foley, (b) interest on beginning capital balances at the rate of 10%, and (c) any remaining income or loss is to be shared by Cain 40%, Foley 35%, and Hardy 25%.