A partnership began its first year of operations with the following capital balances: The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.
What was Thurman's total share of net income for the second year?
A) $17,160 income.
B) $4,160 income.
C) $19,760 income.
D) $17,290 income.
E) $28,080 income.

Question

A partnership began its first year of operations with the following capital balances:  The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.
What was Thurman's total share of net income for the second year?
A) $17,160 income. 
B) $4,160 income. 
C) $19,760 income. 
D) $17,290 income. 
E) $28,080 income.

Quizplus · Accepted Answer

First, we need to calculate each partner's capital balance for the first year including the assigned interest and withdrawals:
Young:
Capital balance: $240,000
Interest: $24,000 ($240,000 x 10%)
Salary: $26,000
Less withdrawal: $13,000
Final balance: $277,000

Eaton:
Capital balance: $120,000
Interest: $12,000 ($120,000 x 10%)
Less withdrawal: $13,000
Final balance: $119,000

Thurman:
Capital balance: $160,000
Interest: $16,000 ($160,000 x 10%)
Salary: $13,000
Less withdrawal: $13,000
Final balance: $166,000

Next, we need to allocate the loss of $26,000:
Young: ($26,000 x 5/10) = ($13,000)
Eaton: ($26,000 x 2/10) = ($5,200)
Thurman: ($26,000 x 3/10) = ($7,800)

After allocating the loss, Thurman's final capital balance for the end of the first year is: $158,200

For the second year, each partner's share of net income is calculated as follows:
Young: ($52,000 x 5/10) = $26,000
Eaton: ($52,000 x 2/10) = $10,400
Thurman: ($52,000 x 3/10) = $15,600

Thurman's share of net income for the second year is then added to their final capital balance from the end of the first year:
$158,200 + $15,600 = $173,800

However, Thurman also withdrew $13,000 during the second year, so their total share of net income for the second year is:
$173,800 - $13,000 = $160,800

Therefore, the correct answer is (C) $19,760 income.

A Partnership Began Its First Year of Operations with the Following