Black, White, and Green partnership: Allocating Income
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On January 1, 2019, the partnership of Black, White, and Green was formed when the partners contributed $20,000, $60,000, and $50,000 into the business, respectively.
The three partners agreed to allocate each year's partnership profit (or loss) according to a specified plan written as follows:
- Each partner is entitled to interest computed at the rate of 10% per year based on
his/her capital balances at the beginning of that year.
- Because of prior work experience, Black is entitled to an annual salary allowance of
$12,000, and White is entitled to an annual salary allowance of $8,000.
- Any remaining amount will be allocated as follows: Black, 30%, White, 20%, and
Green, 50%.
During 2019, each partner withdrew $6,000 of cash, and Partner Green invested an additional $15,000 of cash into the partnership on June 30. At the end of 2019, the business reported a net income of $10,000 for the year.
Required: (Please show computations.)
1. Determine how the partnership's net income of $10,000 should be allocated to the
three partners. What amount should be allocated to each partner's account?
2. Determine ending balance for each partner.
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