William and Smith formed a partnership with Scott who contributed $100,000,William who contributed $30,000,and Smith who contributed $70,000.Their partnership agreement called for the earnings division to be based on the ratio of capital investments.If the partnership had a profit of $475,000 for its first year of operation,how much would be credited to Smith's capital account?

Question

Quizplus · Accepted Answer

The total capital invested by the partnership is $200,000 ($100,000 from Scott, $30,000 from William, and $70,000 from Smith). 
So, the ratio of capital investments is:
Scott : William : Smith
100,000 : 30,000 : 70,000
Dividing the profit of $475,000 in this ratio, we get:
Scott's share = (100,000/200,000) * $475,000 = $237,500
William's share = (30,000/200,000) * $475,000 = $71,250
Smith's share = (70,000/200,000) * $475,000 = $166,250
Therefore, $166,250 would be credited to Smith's capital account.

William and Smith Formed a Partnership with Scott Who Contributed