White, Sands, and Luke has the following capital balances and profit and loss ratios:
$60,000 (30%), $100,000 (20%) and $200,000 (50%).
The partnership has received a predistribution plan.
-How would $90,000 be distributed?

Question

Quizplus · Accepted Answer

Under the predistribution plan, the capital balances are first paid interest at the rate of 10%, and then any remaining profits are distributed according to the profit and loss ratios.

Applying this plan to the scenario given, the interest to be paid to each partner would be:

- Partner 1: $6,000 (10% of $60,000)
- Partner 2: $10,000 (10% of $100,000)
- Partner 3: $20,000 (10% of $200,000)

This leaves $54,000 of profits to be distributed according to the profit and loss ratios. The amounts to be distributed to each partner would be:

- Partner 1: $32,400 ($54,000 x 0.6)
- Partner 2: $10,800 ($54,000 x 0.2)
- Partner 3: $10,800 ($54,000 x 0.2)

Adding the interest and profit distributions together gives the following amounts for each partner:

- Partner 1: $38,400
- Partner 2: $20,800
- Partner 3: $30,800

Option C is the only one that includes these amount distributions.

White, Sands, and Luke Has the Following Capital Balances and Profit