Note: This is a Kaplan CPA Review Question
Fox, Greg, and Howe are partners with average capital balances during 20X1 of $120,000, $60,000, and $40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of $30,000 to Fox and $20,000 to Howe, the residual profit or loss is divided equally. In 20X1 the partnership sustained a $33,000 loss before interest and salaries to partners. By what amount should Fox's capital account change?
A) $7,000 increase
B) $11,000 decrease
C) $35,000 decrease
D) $42,000 increase

Question

Quizplus · Accepted Answer

Fox's capital account should decrease by $11,000.The partnership sustained a $33,000 loss before interest and salaries to partners. After deducting salaries of $30,000 to Fox and $20,000 to Howe, the residual loss is $17,000 ($33,000 - $30,000 - $20,000). This loss is divided equally among the partners, so each partner's share is $5,667 ($17,000 / 3). Fox's capital account should therefore decrease by $5,667, plus the $5,333 interest on his average capital balance ($120,000 x 10%).

Note: This Is a Kaplan CPA Review Question