Reference no: EM132977578

Question - Clark and Hernandez established a partnership on January 1, 2020. Clark invested cash of $250,000 and Hernandez invested $85,000 in cash and equipment with a book value of $55,000 and fair value of $68,000. For both partners, the beginning capital balance was to equal the initial investment. Clark and Hernandez agreed to the following procedure for sharing profits and losses:

- 10% interest on the yearly beginning capital balance

- $9 per hour of work that can be billed to the partnership's clients

- the remainder divided in a 2:3 ratio

The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month, which is accounted as direct reduction of that partner's capital balance.

For 2020, the partnership's income was $130,000. Clark had 900 billable hours, and Hernandez worked 1,400 billable hours. Each partner withdrew $1,000 per month throughout 2020.

Required -

a) Determine the amount of net income allocated to each partner for 2020.

b) Determine the balance in both capital accounts at the end of 2020.