Answered: Ezra and Marie’s

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter11: Partnerships: Distributions, Transfer Of Interests, And Terminations

Section: Chapter Questions

Problem 31P

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Question

Ezra and Marie’s partnership agreement specifies 10% interest on the average capital balance and salaries of $60,000 to Ezra and $100,000 to Marie, with the remainder of the income split 3:2 with the larger portion to Ezra. In 2020, the company posted a net loss of $21,000 with Ezra’s average capital balance being $165,000, and Marie had an average capital balance of $76,000. What is the appropriate allocation of the 2020 results?

a- Ezra’s capital account should be reduced by $6,300, and Marie’s capital account should be reduced by $4,200.

b- $0 to both Ezra and Marie since there was no net income for the year.

c- Ezra’s capital account should be reduced by $123,060, and Marie’s capital account should be reduced by $82,040.

e- Ezra’s capital account should be reduced by $46,560, and Marie’s capital account should be increased by $25,560.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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