The partnership agreement between Allen and Barry states that profit and loss sharing arrangements will be based on the ratio of the partner's capital balances. Allen and Barry have capital balances of $90 000 and $60 000 respectively at the end of the accounting period. If profit for the period is $48 000, the profit allocations of each of the partners is:
A) Allen $24 000; Barry $24 000.
B) Allen $28 800; Barry $19 200.
C) Allen $30 000; Barry $18 000.
D) unable to be calculated from the information provided.

Question

Quizplus · Accepted Answer

The profit allocation of each partner can be calculated using the ratio of their capital balances.

Ratio of Allen's capital balance to total capital balance = 90,000 / (90,000 + 60,000) = 0.6
Ratio of Barry's capital balance to total capital balance = 60,000 / (90,000 + 60,000) = 0.4

Allen's profit share = 0.6 x 48,000 = $28,800
Barry's profit share = 0.4 x 48,000 = $19,200

Therefore, the correct answer is B.

The Partnership Agreement Between Allen and Barry States That Profit