Partners Brian,Josh,and Chad have average capital balances of $7,000,$3,000,and $90,000,respectively.Net income for the year is $12,000.Salary allowances are $14,000 for Brian and $5,000 for Josh.Chad gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio.What is Brian's capital balance after distributing the net income?

Question

Quizplus · Accepted Answer

First, calculate the interest for Chad: 10% of $90,000 = $9,000. The total salary allowances are $14,000 (Brian) + $5,000 (Josh) = $19,000. So, the total allocations before the profit split are $9,000 (interest) + $19,000 (salaries) = $28,000. The net income is $12,000, so after the interest and salaries, there's a deficit of $28,000 - $12,000 = $16,000. This deficit is divided among the partners in a 1:1:2 ratio, meaning Brian and Josh each take on 1/4 of the deficit, and Chad takes on 1/2. Brian's share of the deficit is $16,000 * 1/4 = $4,000. Since Brian's initial capital balance is $7,000 and he receives a salary of $14,000, his final balance is $7,000 + $14,000 - $4,000 = $17,000 credit balance.

Partners Brian,Josh,and Chad Have Average Capital Balances of $7,000,$3,000,and $90,000,respectively