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Boswell and Johnson form a
| Book value | Fair value | |
| Land | $15000 | $28000 |
| Building and equipment | 35000 | 36000 |
The partners agree to start their partnership with equal capital balances. No
recognized.
According to the articles of partnership written by the partners,
∙ Boswell receives a compensation allowance of $1,000 per month.
∙ All remaining profits and losses are split 60:40 to Johnson and Boswell, respectively.
∙ Each partner can make annual cash drawings of $5,000 beginning in 2017.
Net income of $11,000 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 $54,000 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 . . . . . . . . . . . . . . . . . . . . 48%
Boswell . . . . . . . . . . . . . . . . . . . . . 12
Walpole . . . . . . . . . . . . . . . . . . . . . 40
All drawings are taken by the partners during 2017. At year-end, the partnership reports an earned net income of $28,000.
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 . . . . . . . . . . . . . . . . . . $ 5,672
Boswell . . . . . . . . . . . . . . . . . . . . 7,880
Walpole . . . . . . . . . . . . . . . . . . .. . 8,688
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 $800 per month and an annual drawing of $4,000. Profits and losses are now assigned as follows:
Johnson . . . . . . . . . . . . . . . . . . . 40.5%
Boswell . . . . . . . . . . . . . . . . . . . . . 13.5
Walpole . . . . . . . . . . . . . . . . . . . . . 36.0
Pope . . . . . . . . . . . . . . . . . . . . . . . 10.0
For the year of 2018, the partnership earned a profit of $46,000, 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.
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