Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 20

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 partnership withdrawals, the partnership agreement calls for profit sharing as follows:
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.