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 in a ratio of 5:3.If net income for the current year is $54,000,what amount is credited to Hugh's capital account?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount each partner receives based on their initial capital contributions: 
- Hugh: $80,000 x 10% = $8,000 
- Liz: $120,000 x 10% = $12,000

Next, we need to divide the remaining income in a 5:3 ratio: 
- 5 parts go to Hugh: $54,000 x 5/8 = $33,750 
- 3 parts go to Liz: $54,000 x 3/8 = $20,250

Finally, we add the $20,000 service fee to Hugh's share: 
- Hugh's total share: $8,000 + $33,750 + $20,000 = $61,750

Therefore, $36,750 is credited to Hugh's capital account ($61,750 - $25,000 already credited for initial contribution).

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