Question

The articles of partnership for Pal-Trotter Partnership provide for a salary allowance of $5,000 per month for partner Trotter, with the balance of net income to be divided equally. If Trotter made an additional investment of $10,000 during the year and withdrew $4,000 per month, and net income for the year was $80,000, by what amount did Trotter's capital increase during the year? a.$32,000 b.$10,000 c.$60,000 d.$48,000

Answer 1

Answer: A: $32,000

Explanation: From the question above, a salary allowance of $5000 was made per month. so for the year, its $5,000*12 = $60,000

The partnership made a net income of $80,000

therefore, $80,000-$60,000 = $20,000 net profit to be divided by the partners = $20,000 /2 = $10,000 each

Trotter made an additional $10,000 investment

he also withdrew $4000 per month for the year= $4000*12 = $48,000

his capital increase during the year:

Net profit = $10,000

Additional Investment = $10,000

Salary allowance less withdrawal = $60,000 - $48,000=$12,000

Total = $32,000.00