Table 12-4
Jana Jones, Jill Jacks, and Carolle Cann formed a partnership by investing $250,000, $200,000, and $150,000, respectively. They agreed to share profits as follows:
1) An annual allocation for the service each partner contributes to the partnership: $40,000 to Jana, $20,000 to Jill, and $30,000 to Carolle.
2) Interest on their original capital balances of 10%.
3) Any remainder equally.
-Refer to Table 12-4.If during the first year of business,the company incurs a net loss of $20,000,the capital account of Carolle would:

Question

Table 12-4
Jana Jones, Jill Jacks, and Carolle Cann formed a partnership by investing $250,000, $200,000, and $150,000, respectively. They agreed to share profits as follows:
1) An annual allocation for the service each partner contributes to the partnership: $40,000 to Jana, $20,000 to Jill, and $30,000 to Carolle.
2) Interest on their original capital balances of 10%. 
3) Any remainder equally.
-Refer to Table 12-4.If during the first year of business,the company incurs a net loss of $20,000,the capital account of Carolle would:

Quizplus · Accepted Answer

The net loss of $20,000 will be allocated to the partners based on their profit sharing ratio, which is in proportion to their original capital investments. Therefore, Jana would bear 50% of the loss ($10,000), Jill would bear 40% of the loss ($8,000), and Carolle would bear 30% of the loss ($6,000).

After the allocation of the loss, each partner's capital account would be adjusted to reflect their share of the loss. Carolle's original capital investment was $150,000, and her share of the loss is $6,000. Therefore, after adjusting for the loss, Carolle's capital account would decrease by $6,000 to $144,000.

However, Carolle also has an annual allocation of $30,000 for the services she contributes to the partnership. This means that she would receive an additional $30,000 in her capital account for the year, bringing her ending capital balance to $174,000.

Overall, Carolle's capital account would decrease by $6,000 due to the loss but increase by $30,000 due to her annual allocation, resulting in a net increase of $24,000. Therefore, the correct answer is choice D - Carolle's capital account would decrease by $11,667.

Table 12-4 Jana Jones, Jill Jacks, and Carolle Cann Formed a Partnership