15-12 Formation, Operation, and Changes in Membership (Note: Question 21 is a Ka
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15-12 Formation, Operation, and Changes in Membership (Note: Question 21 is a Kaplan CPA Review Question) 24. Fox, Greg, and Howe are partners with average capital balances during 20X1 of $120,000, s60,000, and $40,000, respectively. Partners receive 10% interest balances. After deducting salaries of $30,000 to Fox and $20,000 to Howe, the residual profit or loss is divided equally. In 20X1 the partnership sustained a $33,000 loss before interest and salaries to partners. By what amount should Fox's capital account change? A. $7,000 increase B. S11,000 decrease C. $35,000 decrease D. $42,000 increase on their average capitalExplanation / Answer
Answer = Increase $7,000
Fox's Interest = 120,000*10% = 12,000
Fox's Salary = 30,000
Firm's loss before Salary and Interest = 33,000
Total loss after salary and Interest = Loss + Salary to all partners + Interest to all partners
= 33,000 + (30,000 + 20,000) + (120,000*10% + 60,000*10% + 40,000*10%)
= 33,000 + 50,000 + 22,000
Total loss after salary and Interest = 105,000
Fox's Share in loss = 105,000 * 1/3
Fox's Share in loss= $35,000
Net Increase In fox's Capital = Fox salary + Fox interest on capital - Fox share in loss
= 30,000 + 12,000 - 35,000
Net Increase In fox's Capital = 7,000
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