Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income in ratio of capital balances.

Question

Quizplus · Accepted Answer

The ratio of their capital balances is $100,000/$300,000, which simplifies to 1/3.

Since Jackson devotes full time and Campbell half time, they are contributing in a ratio of 2:1 (2 for Jackson and 1 for Campbell).

Therefore, the total ratio is 2 + 1 = 3.

To divide $150,000 in this ratio, we first add 2+1 = 3 parts.

Each part is worth $150,000/3 = $50,000.

Jackson gets 2 parts, which is $50,000 x 2 = $100,000.

Campbell gets 1 part, which is $50,000 x 1 = $50,000.

So the division of net income in ratio of capital balances is $37,500 and $112,500.

Jackson and Campbell Have Capital Balances of $100,000 and $300,000