Bray, Lincoln, and Mapes arranged to import and sell orchid corsages for a university dance. They agreed to share equally the net income or net loss of the venture. Bray and Lincoln advanced $225 and $300 of their own respective funds to pay for advertising and other expenses. After collecting for all sales and paying creditors, the partnership has $1,500 in cash.
a. How should the money be distributed?
b. Assuming that the partnership has only $300 instead of $1,500, do any of the three partners have a capital deficiency? If so, how much?
Answer:
a. Cash should be distributed as indicated in the following tabulation:
Bray Lincoln Mapes Total
Capital invested………
Net income……………
$225
+325
$300
+325
$ —
+325
$ 525
+ 975*
Capital balances and
cash distribution…… $550 $625 $325 $1,500
* $1,500 – $225 – $300
b. Mapes has a capital deficiency of $75, as indicated in the following
tabulation:
Bray Lincoln Mapes Total
Capital invested…… $225 $300 $— $525
Net loss………………… – 75 – 75 –75 –225*
Capital balances…… $150 $225 $(75) Dr.
* $300 – $525
a. How should the money be distributed?
b. Assuming that the partnership has only $300 instead of $1,500, do any of the three partners have a capital deficiency? If so, how much?
Answer:
a. Cash should be distributed as indicated in the following tabulation:
Bray Lincoln Mapes Total
Capital invested………
Net income……………
$225
+325
$300
+325
$ —
+325
$ 525
+ 975*
Capital balances and
cash distribution…… $550 $625 $325 $1,500
* $1,500 – $225 – $300
b. Mapes has a capital deficiency of $75, as indicated in the following
tabulation:
Bray Lincoln Mapes Total
Capital invested…… $225 $300 $— $525
Net loss………………… – 75 – 75 –75 –225*
Capital balances…… $150 $225 $(75) Dr.
* $300 – $525
