A Partnership Began Its First Year of Operations with the Following

question 86

Multiple Choice

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
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 the balance in Young's Capital account at the end of the second year?

• A) $133,380.
• B) $84,760.
• C) $105,690.
• D) $132,860.
• E) $71,760.

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Definitions:

Working Capital

The difference between a company’s current assets and current liabilities, indicating the short-term financial health and operational efficiency.

Salvage Value

This is the estimated resale value of an asset at the end of its useful life, used in calculating depreciation.

Cost of Equipment

The total expenditure for purchasing machinery, tools, and other hardware used in production or office environments.

Total Cost Approach

A decision-making process that considers the total direct and indirect costs associated with a purchase or investment, rather than just the acquisition price.