Partners Brian,Josh,and Chad have average capital balances of $7,000,$3,000,and $90,000,respectively.Net income for the year is $12,000.Salary allowances are $14,000 for Brian and $5,000 for Josh.Chad gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio for Brian,Josh,and Chad,respectively.What is Brian's capital balance after distributing the net income? (Assume no change in capital balances during the year. )
A)$17,000 credit balance
B)$3,000 debit balance
C)$10,000 debit balance
D)$7,000 debit balance

Question

Quizplus · Accepted Answer

Brian's capital balance after distributing the net income is calculated as follows:  1. Calculate Chad's interest: 10% of $90,000 = $9,000.  2. Subtract salary allowances and Chad's interest from net income: $12,000 - $14,000 - $5,000 - $9,000 = -$16,000 (deficit).  3. Since there is a deficit, no additional distribution is made.  4. Brian's capital balance remains unchanged at $7,000 credit balance.  5. Add Brian's salary allowance of $14,000 to his capital balance: $7,000 + $14,000 = $21,000.  6. Since there is a deficit, Brian's capital balance is reduced by his share of the deficit: $21,000 - $4,000 (1/4 of $16,000 deficit) = $17,000 credit balance.

Partners Brian,Josh,and Chad Have Average Capital Balances of $7,000,$3,000,and $90,000,respectively