Farrell and Jimmy enter into a partnership agreement on May 1,2017.Farrell contributes $30,000 and Jimmy contributes $140,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net income for the year ended December 31,2017 is $40,000.Which of the following amounts should be credited to Jimmy's capital account?
A)$70,000
B)$40,000
C)$32,941
D)$7,059

Question

Quizplus · Accepted Answer

C)Allocation based on capital balances uses the ratio of the partner's capital balance to the total capital.In this case,Total Capital = $170,000 ($140,000 + $30,000)
Jimmy's Capital balance = $140,000
Income allocated to Jimmy = ($140,000 / $170,000)× $40,000 = $32,941

Farrell and Jimmy Enter into a Partnership Agreement on May