Use the following information to answer the question(s) below.

Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000.
Permanent withdrawals of capital:
Additional investments of capital:

-If the average capital balances for Bertram and Ernest are $200,000 and $240,000,what will the total partnership profit allocations be for Bertram and Ernest in 2014?
A)$100,000 and $140,000
B)$108,000 and $132,000
C)$120,000 and $120,000
D)$140,000 and $100,000

Question

Use the following information to answer the question(s) below.

Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000.
 Permanent withdrawals of capital:
  Additional investments of capital:
 
-If the average capital balances for Bertram and Ernest are $200,000 and $240,000,what will the total partnership profit allocations be for Bertram and Ernest in 2014?
A)$100,000 and $140,000 
B)$108,000 and $132,000 
C)$120,000 and $120,000 
D)$140,000 and $100,000

Quizplus · Accepted Answer

The partnership profit is allocated based on the ratio of the capital balances. To find the total profit allocations, we need to add up the ratios of each partner's capital balance. 
Bertram's ratio is 200,000 / (200,000 + 240,000) = 0.455 or 45.5%
Ernest's ratio is 240,000 / (200,000 + 240,000) = 0.545 or 54.5%
If the total partnership profit allocation is x, then:
Bertram's share = 0.455x
Ernest's share = 0.545x
We can set up the equation:
0.455x + 0.545x = x
1x = x
So, the total partnership profit allocations will be divided equally between Bertram and Ernest. 
If the total profit is $240,000, then Bertram's share is $108,000 (0.455 x $240,000) and Ernest's share is $132,000 (0.545 x $240,000). Therefore, the best choice is B.

Use the Following Information to Answer the Question(s) Below