Norr and Caylor established a partnership on January 1, 20X0. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance;
- $10 per hour of work that can be billed to the partnership's clients; and
- the remainder divided in a 3:2 ratio.
The articles of partnership specified that each partner should withdraw no more than $1,000 per month.
For 20X0, the partnership's income was $70,000. Norr had 1,000 billable hours and Caylor worked 1,400 billable hours. In 20X1, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours, respectively. Each partner withdrew $1,000 per month throughout 20X0 and 20X1.
Required:
(A) Determine the amount of net income allocated to each partner for 20X0.
(B) Determine the balance in both capital accounts at the end of 20X0.