Asked by Victoria Matthews Medina on May 08, 2024
Verified
Partners Brian, Josh, and Chad have capital balances of $11,000, $12,000, and $86,000, respectively. The losses for the year are $14,000. What will Josh's capital balance be if the three partners share profits and losses at a 2:2:6 ratio for Brian, Josh, and Chad, respectively?
A) $9,200 debit balance
B) $8,200 debit balance
C) $2,800 debit balance
D) $9,200 credit balance
Capital Balances
The amounts recorded in the capital accounts of a company or partnership, reflecting the initial capital contributions and subsequent changes including profits earned and withdrawals.
Losses
Financial reductions resulting from business activities, such as the sale of assets for less than their book value or operational losses.
- Familiarize oneself with the primary concepts related to the division of earnings or losses in a business partnership, as well as gain knowledge on various allocation techniques, notably the profit and loss ratio.
- Absorb and put into practice closing entries to equitably allocate net income according to partners' agreed ratios or capital balances.
Verified Answer
LM
Leticia MolinaMay 10, 2024
Final Answer :
D
Explanation :
Josh's capital balance will be $9,200 credit balance after sharing the losses according to the 2:2:6 ratio. The total ratio units are 10 (2+2+6), and Josh's share is 2/10 of the losses. The losses are $14,000, so Josh's share is 2/10 * $14,000 = $2,800. Subtracting this from his original capital of $12,000 gives $12,000 - $2,800 = $9,200 credit balance.
Learning Objectives
- Familiarize oneself with the primary concepts related to the division of earnings or losses in a business partnership, as well as gain knowledge on various allocation techniques, notably the profit and loss ratio.
- Absorb and put into practice closing entries to equitably allocate net income according to partners' agreed ratios or capital balances.