Quote:
Originally Posted by Fatima Saleem
Carter and Dixie have capital account balances of $80,000 and $100,000, respectively, at the beginning of 2000. Their partnership agreement provides for interest on beginning capital account balances, 10%; salaries to Carter, $30,000, and to Dixie, $24,000; residual income or loss divided 60% to Carter and 40% to Dixie. Partnership net income for 2000 is $62,000. Neither partner made any additional investment in the partnership during 2000, but Carter withdrew $1,500 monthly and $1,000 monthly throughout 2000. The partnership balance sheet at December 31, 2000, should include:
Carter, Capital, $94,000
Carter, Capital, $100,000
Dixie, Capital, $30,000
Total partners’ equity, $242,000
Answer is that Carter's Capital, 94,000.
Can anyone explain?
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Profit allocation
net income to be divided .............................. 62000
salary deductions:
Carter............................................ ..............(30000)
Dixie............................................. ..............(24000)
Interest allowance deductions:
Carter(10 % of 80000)...................................(8000)
Dixie(10 % of 100000)....................................
(10000)
Residual Income............................................ ..(10000) {62-30-24-8-10}
Residual Income allocation
Carter(60 % of 10000)...................................(6000)
Dixie............................................. ...............(4000)
Carter Capital account
Opening capital of carter................................80000
Add: interest.......................................... ......8000
salary............................................ ......30000
Less: Residual loss.......................................(6000)
Drawings(12*1,500)............................
(18000)
Closing Capital of carter................................... 94000