Farrell and Jimmy enter into a partnership agreement on 1 May 2017.Farrell contributes $50,000 and Jimmy contributes $160,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net profit for the year ended 31 December 2017 is $60,000.Which of the following amounts should be credited to Jimmy's capital account?
A)$45,714
B)$60,000
C)$14,286
D)$50,000

Question

Quizplus · Accepted Answer

The profit sharing ratio is based on the partners' capital account balances, which are $50,000 for Farrell and $160,000 for Jimmy, for a total of $210,000. 
To find Jimmy's share of the $60,000 net profit:

Jimmy's share = Net profit x (Jimmy's capital contribution / Total capital contributions) 
Jimmy's share = $60,000 x ($160,000 / $210,000) 
Jimmy's share = $45,714

Therefore, $45,714 should be credited to Jimmy's capital account.

Farrell and Jimmy Enter into a Partnership Agreement on 1