Cox, North, and Lee form a partnership. Cox contributes $180,000, North contributes $150,000, and Lee contributes $270,000. Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally.
- If the partnership reports income of $150,000 for its first year, what amount of income is credited to North's capital account?

Question

Quizplus · Accepted Answer

First, calculate the interest allowance: North's contribution is $150,000, so 5% of that is $7,500. The total interest allowance for all partners is $30,000. Subtracting this from the total income ($150,000 - $30,000) leaves $120,000 to be divided equally among the three partners. Each partner receives $40,000 from this division. Adding North's interest allowance ($7,500) to his share of the remaining income ($40,000) gives $47,500.

Cox, North, and Lee Form a Partnership