W. Bell and C. Quirk started a partnership in 2013. Because Bell contributed a larger amount toward the partnership at inception, the partnership agreement specified the following split of profits and losses in a two- phase allocation. The first allocation would split profits and losses in proportion to the partners' relative capital balances up to 20% of those balances. The remainder would be split evenly. At the end of the first year, the partnership had a loss of $40 000. Partners' capital balances were as follows: W. Bell: $102 000 C. Quirk: $18 000
At the end of 2013, after the year's loss was allocated, what was the updated balance in Bell's capital account?

Question

Quizplus · Accepted Answer

First, allocate the loss up to 20% of capital balances: Bell: $102,000 * 20% = $20,400; Quirk: $18,000 * 20% = $3,600. Total allocated: $24,000. Remaining loss: $40,000 - $24,000 = $16,000. Split the remaining loss evenly: $16,000 / 2 = $8,000 each. Bell's total loss: $20,400 + $8,000 = $28,400. Updated balance: $102,000 - $28,400 = $73,600.

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