Reference no: EM132360040
Question
Boswell and Johnson form a partnership on May 1, 2016. Boswell contributes cash of $61,000; Johnson conveys title to the following properties to the partnership:
Book Value Land: $20,500 Building and equipment $40,500
Fair Value Land $39,000 Building and equipment $47,000
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 $1,800 per month.
All remaining profits and losses are split 70:30 to Johnson and Boswell, respectively.
Each partner can make annual cash drawings of $5,000 beginning in 2017.
Net income of $16,500 is earned by the business during 2016.
Walpole is invited to join the partnership on January 1, 2017. Because of her business reputation and financial expertise, she is given a 40 percent interest for $65,000 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 now allocated:
Johnson 50% Boswell 10 Walpole 40
All drawings are taken by the partners during 2017. At year-end, the partnership reports an earned net income of $39,000.
On January 1, 2018, 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 $8,807 Boswell 9,638 Walpole 10,724
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 $1,600 per month and an annual drawing of $4,000. Profits and losses are now assigned as follows:
Johnson 41.5% Boswell 13.5 Walpole 35.0 Pope 10.0
For the year of 2018, the partnership earned a profit of $66,000, and each partner withdrew the allowed amount of cash.
Determine the capital balances for the individual partners as of the end of each year: 2016 through 2018.