Page 136 - Business Principles and Management

Chapter 5 • Proprietorships and Partnerships

FIGURE 5-5 Balance Sheet for York, Burton, and Chan at Start-up

ASSETS CLAIMS AGAINST ASSETS
Cash $282,720 Accounts Payable
(Liabilities) $ 21,600
Merchandise 35,280
J. York, Capital 204,000
Equipment 51,600
R. Burton, Capital 204,000
Land & Buildings 264,000
L. Chan, Capital 204,000

Total $633,600 Total $633,600

dise, equipment, and land and buildings) as well as the accounts payable liability
category is the totals of these categories from Burton’s and York’s businesses. The
cash category combines the cash from both businesses plus Chan’s cash investment
of $204,000.
A key factor in the success of a partnership is that the partners must clearly
agree upon each person’s responsibilities. York, Burton, and Chan divide their
duties: York supervises the grocery department, Burton supervises the bake shop
and meat department, and Chan handles the finances, inventory, and records.
During the year the three partners combine the stores, remodel them, buy new
equipment, and open for business. The financial statement at the end of the year,
shown in Figure 5-6, shows the results of the new partnership.
Has the partnership had a successful year? Each partner has received a salary
of $5,000 a month (according to the terms of the partnership agreement). In
addition, the capital or net worth of each partner has increased from $204,000
to $221,700 as a result of profits made during the year. This increase in the total
capital from $612,000 ($204,000 times 3) to $665,100 ($221,700 times 3)
amounts to $53,100 and is an increase of nearly 8.7 percent. Chan, who bor-
rowed some of the money for his investment, had to pay 7 percent interest to
the lender. His investment in the partnership brought him a return that is more
than the interest on his loan.

FIGURE 5-6 York, Burton, and Chan’s Balance Sheet at Year’s End

ASSETS CLAIMS AGAINST ASSETS

Cash $ 240,000 Accounts Payable
(Liabilities) $ 74,900
Merchandise 60,000
J. York, Capital 221,700
Equipment 90,000
R. Burton, Capital 221,700
Land & Buildings 350,000
L. Chan, Capital 221,700

Total $740,000 Total $740,000

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