Question

The net income of the Linder and Hill partnership is $250,000. The partnership agreement specifies that profits and losses will be shared equally after salary allowances of $200,000 (Linder) and $150,000 (Hill) have been allocated. At the beginning of the year, Linder 's Capital account had a balance of $500,000 and Hill's Capital account had a balance of $650,000. What is the balance of Hill's Capital account at the end of the year after profits and losses have been distributed?

A. $650,000

B. $100,000

C. $750,000

D.$775,000

Answer 1

Answer:

The correct answer is ( option C) $ 7,50,000, Hill's Capital account at the end of the year after profits and losses

Calculation of net income/loss in the following:

Particulars	Amount	Amount
Net income		$ 2,50,000
Less : Salaries distributed	$ 2,00,000+$ 1,50,000 = $ 3,50,000	$ 3,50,000
Net loss	$ 2,50,000 - $ 3,50,000 = $ 1,00,000	$ 1,00,000

Calculation of ending capital balances :

Particulars	Linder	Hill
Beginning balances	$ 5,00,000	$ 6,50,000
Add: Salaries	$ 2,00,000	$ 1,50,000
Balance	= $ 5,00,000 + $ 2,00,000 = $ 7,00,000	$ 6,50,000 + $ 1,50,000 = $ 8,00,000
Less: Net loss distributed	( $ 50,000)	( $ 50,000)
Ending capital balance	= $ 7,00,000 - $ 50,000 = $ 6,50,000	=$ 8,00,000 - $ 50,000 = $ 7,50,000