Asked by Mariah Donnally on Jun 24, 2024
Verified
Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%; salary allowances of $27,000 and $18,000, respectively; and the remaining income equally. How much of the net loss of $6,000 is allocated to Yolanda?
A) $1,000
B) $3,000
C) $5,000
D) $0
Original Investments
The capital that the owners or shareholders initially put into the business to fund operations.
Net Loss
The deficit that occurs when a company's total expenses exceed its total revenues, indicating a negative profit for a specific period.
Salary Allowances
Fixed amounts of money or compensations over and above regular salaries or wages that employees are entitled to receive under certain conditions or for specific purposes.
- Comprehend the allocation of net income or loss between partners based on different agreement terms.
Verified Answer
GD
Gayal DissanayakaJun 30, 2024
Final Answer :
C
Explanation :
Yolanda bears $5,000 of the net loss. First, interest on investments is calculated: Xavier gets $5,000 (10% of $50,000) and Yolanda gets $10,000 (10% of $100,000). Then, salary allowances are added: Xavier's total is $32,000 ($5,000 + $27,000) and Yolanda's is $28,000 ($10,000 + $18,000). Since there's a net loss, no remaining income is divided, and the loss is absorbed by their initial allocations. The loss is distributed in reverse order of profit allocation, affecting Yolanda more due to her higher initial income allocation, resulting in her bearing $5,000 of the loss.
Learning Objectives
- Comprehend the allocation of net income or loss between partners based on different agreement terms.