Hodges and Burton formed a partnership with capital of $30 000 and $45 000 respectively. The partnership agreement provides for the crediting of annual salaries of $45 000 to Hodges and $75 000 to Burton. Each partner is entitled to 20% interest on capital. The remaining profit or loss is divided equally. Assuming capital balances are adjusted to reflect profits and losses, how much, in total, will be credited to Burton's capital account if profit for the year is $198 000?

Question

Quizplus · Accepted Answer

First, we need to calculate the interest on capital for each partner:
- Hodges: 20% of $30,000 = $6,000
- Burton: 20% of $45,000 = $9,000

Next, we need to subtract the annual salaries from the profit:
$198,000 - ($45,000 + $75,000) = $78,000

We then divide the remaining profit equally between the partners:
$78,000 / 2 = $39,000

So Hodges and Burton each get:
- Hodges: $6,000 + $39,000 = $45,000
- Burton: $9,000 + $39,000 = $48,000

Finally, we add these amounts to their capital balances:
- Hodges: $30,000 + $45,000 = $75,000
- Burton: $45,000 + $48,000 = $93,000

Therefore, the total credited to Burton's capital account is:
$93,000 - $45,000 = $48,000, but we need to add the interest on capital previously calculated:
$48,000 + $9,000 = $57,000

Thus, the correct answer is B) $115,500.

Hodges and Burton Formed a Partnership with Capital of $30