In 2013, A. Mernick and L. Gold entered into a partnership to develop real estate projects. Each partner contributed $200 000. Due to their respective roles in the business, the partnership agreement specifies a two- phase profit split. The first $90 000 will be split in a ratio of 1:2 to Mernick and Gold, respectively. All profits over $90 000 will be split equally. During 2013, the following transactions took place: Total partnership profit was $110 000. Mernick took withdrawals of $32 000. Gold took withdrawals of $50 000.
At the end of the year, what was the balance in Mernick's capital account?

Question

Quizplus · Accepted Answer

Mernick's share of the first $90,000 profit is $30,000 (1/3 of $90,000). The remaining $20,000 profit is split equally, giving Mernick an additional $10,000. Total profit for Mernick is $40,000. Starting with $200,000, adding $40,000 profit, and subtracting $32,000 withdrawals, Mernick's capital account balance is $208,000.