Farrell and Jimmy enter into a partnership agreement on May 1, 2015. Farrell contributes $50,000 and Jimmy contributes $150,000 as their capital contributions. They decide to share profits and losses in the ratio of their respective capital account balances. The net loss for the year ended December 31, 2015 is $40,000. The capital account of Farrell should be ________ with the amount of loss.
A)debited
B)credited
C)increased
D)halved

Question

Quizplus · Accepted Answer

Since the partnership incurred a net loss, the capital accounts should be decreased accordingly. In this case, Farrell's share of the loss would be calculated by multiplying his capital contribution ($50,000) by his share of the partnership (1/4), resulting in a loss of $12,500. To decrease his capital account by this amount, it should be debited.

Farrell and Jimmy Enter into a Partnership Agreement on May