Sally and Amanda have capital balances of $60 000 and $75 000, respectively and use the variable capital balances method. If their profit/loss sharing ratios are Sally 40% and Amanda 60% calculate Amanda's capital balance after a net loss of $40 000 is distributed.

Question

Quizplus · Accepted Answer

The total profit/loss sharing ratio is 100% (40% + 60%). To calculate Amanda's share of the loss, we multiply her profit/loss sharing ratio by the total loss: 
60% x $40 000 = $24 000
Her new capital balance is her previous balance minus her share of the loss: 
$75 000 - $24 000 = $51 000.

Sally and Amanda Have Capital Balances of $60 000 and $75