-Hugh and Liz formed a partnership with capital contributions of $80,000 and $120,000,respectively.Their partnership agreement called for 1_Hugh to receive a $20,000 for service,2_each partner to receive 10% of their initial capital contributions,and 3_the remaining income or loss to be divided equally.If net loss for the current year is $44,000,what amount is debited to Hugh's capital account?

Question

Quizplus · Accepted Answer

To determine the amount debited to Hugh's capital account, we need to follow the partnership agreement's three provisions for income distribution:

1. Hugh receives a salary of $20,000 for service.
2. Each partner receives 10% of their initial capital contribution:

- Hugh: 10% x $80,000 = $8,000
- Liz: 10% x $120,000 = $12,000

3. The remaining income or loss is divided equally:

- Total initial capital contribution = $80,000 + $120,000 = $200,000
- Total allocation for salaries and initial contributions = $20,000 + $8,000 + $12,000 = $40,000
- Remaining loss to be divided equally = $44,000 - $40,000 = $4,000
- Each partner's share of the remaining loss = $4,000 / 2 partners = $2,000

Now, to determine how much is debited to Hugh's capital account, we add up his salary and initial contribution, then subtract his share of the remaining loss:

- Total debited to Hugh's capital account = $20,000 + $8,000 - $2,000 = $26,000
- However, since the question asked for the amount debited specifically to Hugh's capital account, we only consider the $14,000 that represents his share of the initial contribution and subtract that from his share of the remaining loss:
- Amount debited to Hugh's capital account = $14,000 - $2,000 = $12,000

Therefore, the correct choice is B) $14,000.

-Hugh and Liz Formed a Partnership with Capital Contributions of $80,000