ABC Partnership had the following provisions for the distribution of profits Eac

Question

ABC Partnership had the following provisions for the distribution of profits Each partner receives 8 percent interest on the capital balance. Partners A and C receive salaries of $12,000 and $15,000 Partner B receives a bonus of 10% of net income after salaries and the bonus. respectively . Any remaining income or loss is to be distributed between A, B, and C in the ratio o f 1:1:2 respectively. The partners had the following capital and drawings information during the year Partner A: January 1t capital balance: $100,000, March 1"; Invested an additional $10,000, July 1" withdrew $25,000. Partner B: January 1t capital balance: $75,000, September 1t; withdrew $5,000 Partner C January 1" capital balance: $150,000, April 1"; withdrew $20,000, June 1 June 1" invested $30,000. Answer the following questions assuming that net income for the year was $71,000. Assuming that interest is calculated on ending capital balances before closing drawings in capital accounts, What is the interest on capital for Partner A? 12. a. $8,800 b. $8,000 c. $7667 d. $4267 Assuming that interest is calculated on weighted average capital, what is the interest on capital for Partner C? 13. a. $12,800 b. $14,400 ?. $13,400 d. $12,000 14. What is the amount of the bonus for Partner 8? a. $4,400 b. $6,455 c. $4,000 d. None of these

Explanation / Answer

Net Income                71,000.00 12)Closing capital of A =100000+10000=110000 interest on capital=110000*8/100                                     = $ 8800 question specifically provides to calculate on closing capital before interest on drawings therefore option A is correct 13)if interest is calculated on weighted average capital weighted average capital=(150000*12/12)+(30000*7/12)                                                    =167500 interest on capital=167500*8/100                                     =$ 13400 option c is correct 14)net income                71,000.00 salaries: Partner A -             12,000.00 Partner c -             15,000.00 net income after partners salary                44,000.00 Bonus to Partner C is 10% of Net income after salary and bonus that is 44000*10/110= $ 4000 bonus to C=4000 Option C is correct

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