Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $175,000 for its first year, what amount of income is credited to Smith's capital account?

Question

Quizplus · Accepted Answer

The total capital invested is $180,000 (Smith) + $150,000 (West) + $270,000 (Krug) = $600,000. Smith's share of the capital is $180,000, which is 30% of the total ($180,000 / $600,000). Therefore, Smith's share of the income is 30% of $175,000, which equals $52,500.

Smith, West, and Krug Form a Partnership