302153 Partnership Accounts 2I

Question 1

During 20X2, partners Joth and Lang had partnership profit before interest of $28,000. Throughout the year, the partners maintained average capital balances in their partnership of $140,000 (Joth) and $120,000 (Lang). The partners receive 5% interest on average capital balances, and residual profit or loss is divided equally. By what amount should Joth’s capital account change for the year?

$14,500

$13,500

$7,500

$28,000

Question #302153

Answer 1

$14,500

Question 2

Capital

Answer 2

Capital is a factor of production, one of the three essential elements of obtaining or producing wealth. Capital is man-made “investment” goods, e.g., tools, machinery, equipment, buildings, and storage, transportation, and distribution facilities. It is considered to be held (owned) primarily by households. Capital is a microeconomic concept.

Note: The economic resource known as capital or real capital refers only to man-made productive assets; money is not included in this definition. To an economist, money is financial capital or money capital.

Capital is the interest of owner(s) in the net assets (total assets minus total liabilities) of an entity. It is the measure of the resources provided to an entity that are considered permanent in nature—long-term debt and owner’s equity.

In an economic sense, capital also means assets that provide productive capacity—a factor of production.

(Compare to land and labor.)

Question 3

Rules of Distribution

Answer 3

The rules of distribution involve the right to take precedence in the receipt of net assets from the dissolution or bankruptcy of an entity, usually said of a partnership or of any entity in bankruptcy.

Question 4

2296.05

Answer 4

Question 5

2296.06

Answer 5

If there is no statement in the partnership agreement concerning profit or loss distribution, all partners share equally in both profits and losses. Several factors, however, are frequently considered in establishing an agreement on profit or loss division:

• Relative asset investment of partners
• Relative time (service) investment of partners
• Relative experience, expertise, and education of partners