Question

Item 1

The partnership agreement for Wilson, Pickett & Nelson, a general partnership, provided that profits or losses be shared between the partners in the ratio of their financial contributions to the partnership. Wilson contributed $135,000, Pickett contributed $81,000 and Nelson contributed $27,000. In the partnership's first year of operation, it incurred a loss of $243,000. What amount of the partnership's loss is allocated to Nelson?
Multiple Choice

$81,000

$60,750

$27,000

$0

$121,500

Answer 1

$27,000

Step-by-step explanation:

The partnership's loss is allocated among the partners based on the ratio of their financial contributions to the partnership. Let's calculate the ratio for each partner:

Wilson's ratio = Wilson's contribution / Total contributions = $135,000 / ($135,000 + $81,000 + $27,000) = $135,000 / $243,000 = 0.5556

Pickett's ratio = Pickett's contribution / Total contributions = $81,000 / ($135,000 + $81,000 + $27,000) = $81,000 / $243,000 = 0.3333

Nelson's ratio = Nelson's contribution / Total contributions = $27,000 / ($135,000 + $81,000 + $27,000) = $27,000 / $243,000 = 0.1111

Now, we can allocate the loss to each partner based on their respective ratios:

Nelson's allocated loss = Nelson's ratio * Total loss = 0.1111 * $243,000 = $27,000

Therefore, the amount of the partnership's loss allocated to Nelson is $27,000.