Question

Wheaton, Davis, and Singer formed a partnership with Wheaton contributing $60,000. Davis contributing $50,000 and Singer contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership has income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to Wheaton's capital account? $20,000 $25,000 $30,000 $40,000 $75,000.

Answer 1

Answer:

Amount to be credited to Wheaton's Account=$30,000

Explanation:

The capital investments made by each is as follows;

Wheaton=$60.000

Davis=$50,000

Singer=$40,000

Total capital investment=Wheaton's investment+Davis Investment+Singer's investment

Replacing;

Total capital investment=(60,000+50,000+40,000)=$150,000

Wheaton's capital ratio=Wheaton's capital investment/Total capital investment

=(60,000/150,000)=2/5

Davis capital ratio=Davis' capital investment/Total capital investment

=(50,000/150,000)=1/3

Singer's capital ratio=Singer's capital investment/Total capital investment

=(40,000/150,000)=4/15

Amount to be credited to Wheaton's Account=Wheaton's Capital investment ratio×Income=(2/5)×75,000=30,000

Amount to be credited to Wheaton's Account=$30,000