Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner's beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021.What was the total capital balance for the partnership at December 31, 2020?

Question

Quizplus · Accepted Answer

The total capital balance is calculated by adding the initial capital contributions, the net income for the year, and subtracting the withdrawals. Initial capital is $550,000. Interest is $55,000 (10% of $550,000). Pinkman's compensation is $15,000. The remainder of the income ($130,000) is split as $26,000 for Goodman, $52,000 for Pinkman, and $52,000 for White. Total withdrawals are $54,000 ($18,000 each). The total capital balance is $550,000 + $200,000 - $54,000 = $696,000.

Goodman, Pinkman, and White Formed a Partnership on January 1