Partners Brian, Josh, and Chad have average capital balances of $11,000, $10,000, and $90,000, respectively. Net income for the year is $20,000. Salary allowances are $19,000 for Brian and $8,000 for Josh. Chad gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio for Brian, Josh, and Chad, respectively. What is Brian's capital balance after distributing the net income? (Assume no change in capital balances during the year.)
A) $26,000 credit balance
B) $5,000 debit balance
C) $16,000 debit balance
D) $11,000 debit balance

Question

Quizplus · Accepted Answer

First, calculate the interest for Chad: 10% of $90,000 = $9,000. The total salary allowances are $19,000 for Brian and $8,000 for Josh, totaling $27,000. The net income is $20,000, so after paying Chad's interest ($9,000), $11,000 remains. This $11,000 is divided among Brian, Josh, and Chad in a 1:1:2 ratio, resulting in $2,200 for Brian, $2,200 for Josh, and $4,400 for Chad. Adding the salary allowance and the divided income to Brian's initial capital: $19,000 (salary) + $2,200 (divided income) + $11,000 (initial capital) = $32,200. However, the question seems to have an inconsistency in the calculation or the provided options, as none of the options directly match the calculated outcome. Given the options, the closest and logically chosen answer based on the provided calculation method would be to consider the initial capital and the distribution of net income, which would lead to an increase in Brian's capital balance. However, the correct calculation based on the given data and method should result in Brian's capital balance increasing from his initial balance, reflecting the addition of his salary allowance and his share of the remaining net income after Chad's interest and both salaries are accounted for. The mistake in my explanation is acknowledging an error in calculation or option provided; the correct approach shows Brian's capital balance increases, but due to a misunderstanding in the distribution calculation, the exact final balance needs clarification based on the given options.

Partners Brian, Josh, and Chad Have Average Capital Balances of $11,000