The summarized balances of the accounts of MNO partnership on December 31,2017,are as follows: The agreed upon profit/loss ratio is 50:40:10,respectively.Using the information given above,which one of the following amounts,if any,is the loss absorption potential of partner N as of December 31,2017?

Question

The summarized balances of the accounts of MNO partnership on December 31,2017,are as follows:  The agreed upon profit/loss ratio is 50:40:10,respectively.Using the information given above,which one of the following amounts,if any,is the loss absorption potential of partner N as of December 31,2017?

Quizplus · Accepted Answer

To calculate the loss absorption potential of partner N, we need to find out the amount that partner N can contribute towards any losses that the partnership may incur.

Step 1: Calculate the total capital of the partnership
$450,000 + $360,000 + $90,000 = $900,000

Step 2: Calculate the share of profit/loss for each partner using the agreed upon ratio.
Partner M: $450,000 x 50% = $225,000
Partner N: $450,000 x 40% = $180,000
Partner O: $90,000 x 10% = $9,000

Step 3: Calculate the loss absorption potential of partner N
Partner N's share of total capital = $360,000
Partner N's share of potential losses = $180,000
Loss absorption potential = Partner N's share of total capital - Partner N's share of potential losses
= $360,000 - $180,000
= $180,000

Therefore, the loss absorption potential of partner N as of December 31, 2017, is $180,000, and the best choice is C.

The Summarized Balances of the Accounts of MNO Partnership on December