Ries and Bax each have a partner's capital balance of $17,500. They split profits and losses equally. Royce is accepted as a 1/3 partner in RB&R Company after contributing $10,000 cash. The partners agree that a 10% interest allowance will be given on each partner's beginning-year capital balance. In addition, Bax and Royce are to receive $5,250 salary allowances. The remainder of the income or loss is to be divided between Ries, Bax, and Royce in a 3:2:1 ratio.
12/31/2015 - The partnership's income for the year is $60,000.
12/31/2016 - The partnership incurred losses of $34,000 for the year. The balance sheet shows $12,500 cash, $135,000 inventory, and $77,000 of accounts payable as of 12/31/16. After selling inventory and using all assets to pay off accounts payable at book value, there is $18,600 cash remaining. The partnership decides to liquidate. Negative capital balances will be covered by other partners.
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