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

Alfred and Barne share profits and losses in a ratio of 2:3, respectively, after salary allowances, interest allowances and bonus allocations. Alfred and Barne receive salary allowances of $30,000 and $60,000, respectively, and both partners receive 10% interest based upon the balance in their capital accounts on January 1. Partners' drawings are not used in determining the average capital balances. Total net income for 2014 is $180,000. If net income after deducting the interest and salary allocations is more than $60,000, Barne receives a bonus of 5% of the original amount of net income.

-If the partnership experiences a net loss of $60,000 for the year,what will be the final net amount of profit or (loss)closed to each partner's capital account?
A)($90,000)to Alfred and $30,000 to Barne
B)($30,000)to Alfred and ($30,000)to Barne
C)($24,000)to Alfred and ($36,000)to Barne
D)$30,000 to Alfred and ($90,000)to Barne

Question

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

Alfred and Barne share profits and losses in a ratio of 2:3, respectively, after salary allowances, interest allowances and bonus allocations. Alfred and Barne receive salary allowances of $30,000 and $60,000, respectively, and both partners receive 10% interest based upon the balance in their capital accounts on January 1. Partners' drawings are not used in determining the average capital balances. Total net income for 2014 is $180,000. If net income after deducting the interest and salary allocations is more than $60,000, Barne receives a bonus of 5% of the original amount of net income.

-If the partnership experiences a net loss of $60,000 for the year,what will be the final net amount of profit or (loss)closed to each partner's capital account?
A)($90,000)to Alfred and $30,000 to Barne 
B)($30,000)to Alfred and ($30,000)to Barne 
C)($24,000)to Alfred and ($36,000)to Barne 
D)$30,000 to Alfred and ($90,000)to Barne

Quizplus · Accepted Answer

If the partnership experiences a net loss of $60,000, it means that the total capital of the partners will decrease by $60,000. Since the partnership agreement stated that the loss should be shared based on their capital ratio (2:1), Alfred, who has a capital of 2/3 of the total capital, will bear 2/3 of the loss ($40,000), while Barne, who has a capital of 1/3 of the total capital, will bear 1/3 of the loss ($20,000). Therefore, Alfred's capital account will decrease by $30,000 (his initial capital of $70,000 minus his share of the loss of $40,000) and Barne's capital account will also decrease by $30,000 (his initial capital of $30,000 minus his share of the loss of $20,000). Hence, the final net amount of profit or (loss) closed to each partner's capital account will be ($30,000) to Alfred and ($30,000) to Barne.

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