Bell and C.Quirk started a partnership in 2014.Because Bell contributed a larger amount toward the partnership at inception,the partnership agreement specified the following split of profits and losses in a two-phase allocation.The first allocation would split profits and losses in proportion to the partners' relative capital balances up to 20% of those balances.The remainder would be split evenly.At the end of the first year,the partnership had a net loss of $40,000.Partners' capital balances were as follows: W. Bell: $ \$ 102,000 $$\quad$$\quad$C. Quirk: $ \$ 18,000 $ How much of the net loss was allocated to W.Bell?

Question

Quizplus · Accepted Answer

The first allocation of losses is up to 20% of the partners' capital balances. For W. Bell, 20% of $102,000 is $20,400, and for C. Quirk, 20% of $18,000 is $3,600. The total of these amounts is $24,000, which is less than the total loss of $40,000. Therefore, the first $24,000 of the loss is allocated in proportion to the partners' capital balances, with W. Bell absorbing $20,400 and C. Quirk absorbing $3,600. The remaining loss of $16,000 ($40,000 - $24,000) is split evenly between the two partners, resulting in an additional $8,000 loss for each. Therefore, W. Bell's total share of the loss is $20,400 (from the first allocation) plus $8,000 (from the second allocation), totaling $28,400.

Bell and C $102,000 \$ 102,000 $102,000 \quad \quad C Quirk $18,000 \$ 18,000 $18,000

Bell and C $\$ 102,000$ $\quad$ $\quad$ C Quirk $\$ 18,000$