Question

Kuffour desires to purchase a 25% capital and profit and loss interest in the partnership of jennifer, reiss, and cole. the three partners agree to sell kuffour 25% of their respective capital and profit and loss interests in exchange for a total payment of $200,000. the payment is made directly to the individual partners. the capital accounts and the respective percentage interests in profits and losses immediately before the sale to kuffour follow:

Answer 1

The firm's accounting profit is calculated by subtracting all operating expenses from sales revenue. After deducting labor, capital, and material costs from the sales revenue of $1 million, the firm's accounting profit is $50,000.

Step-by-step explanation:

The student's question pertains to the calculation of a firm's accounting profit, which is a financial measurement used to determine the profitability of a business over a specific period by subtracting all operating expenses from sales revenue. To determine this, we consider the firm's total revenue and subtract the costs associated with labor, capital, and materials.

For the firm that had sales revenue of $1 million, the costs incurred were:

• Labor: $600,000
• Capital: $150,000
• Materials: $200,000

The sum of these expenses equals $950,000. By subtracting this amount from the firm's sales revenue, we arrive at the accounting profit:

Accounting Profit = Sales Revenue - (Labor + Capital + Materials)

Accounting Profit = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.

Therefore, the firm's accounting profit for last year was $50,000.