Reference no: EM132363536

Problem 

Profit allocation involving interest on capital balances. Rivera, Sampson, and Elliott are partners in a commercial plumbing business. Rivera and Sampson have also started another contracting company and have cash flow needs, which require periodic distributions from the partnership. In order to deal fairly with the level of part¬nership withdrawals, the partnership agreement calls for profit sharing as follows:

Component	Rivera	Sampson	Elliott
Salaries	$80,000	$80,000	$100,000
Bonus on income after the bonus	0%	0%	10%
Interest on "average net capital"	10%	10%	10%
Percentage of remaining profits	30%	30%	40%

"Average net capital" is determined by netting the partners' drawing accounts against their capital accounts and weighting the net amounts for the appropriate portion of the year. On March 31 and September 30, $40,000 is allocated to each partner's capital account in anticipa-tion of the annual actual amount of profit. Activity in the drawing and capital accounts is as follows for the current calendar year:

Drawing Account	Rivera	Sampson	Elliott
Beginning balance January 1	$	$	$
March 31 draws	30,000	40,000
June 30 draws	10,000	25,000	30,000
September 30 draws	20,000	50,000	20,000
Capital Account
Beginning balanceJanuary 1	40,000	50,000	70,000
March 31 anticipated profit allocation	40,000	40,000	40,000
March 31 capital investment	-		40,000
September 30 anticipated profit allocation	40,000	40,000	40,000
September 30 loan conversion		15,000

Sampson had loaned the partnership money in the past, and the transaction was properly classified as a loan payable on the statements of the partnership. On September 30, the loan and accrued interest totaling $15,000 were converted from a loan payable to a capital investment in the partnership.

Determine how the current-year profit of $330,000 is to be allocated among the partners.