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 Krug's capital account?

Question

Quizplus · Accepted Answer

Krug's share = Krug's investment / Total investment * Total income = $270,000 / ($180,000 + $150,000 + $270,000) * $175,000 = $270,000 / $600,000 * $175,000 = 0.45 * $175,000 = $78,750.

Smith, West, and Krug Form a Partnership