Question

Cox, North, and Lee form a partnership. Cox contributes $207,000, North contributes $172,500, and Lee contributes $310,500. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $184,000 for its first year, what amount of income is credited to Cox's capital account?

Answer 1

Cox, receives $55,200

Step-by-step explanation:

First let us simplify the ratio of the capital invested, and this is done as follows:

Cox's contribution = $207,000

North's contribution = $172,500

Lee's contribution = $310,500

Total amount contributed = 207,000 + 172,500 + 310,500 = $690,000

Next, let us calculate the ratios that each individual contributed of the capital, as follows:

Ratio of Cox's contribution = 207,000 ÷ 690,000 = 0.3 × 100 = 30%

Ratio of North's contribution = 172,500 ÷ 690,000 = 0.25 × 100 = 25%

Ratio of Lee's contribution = 310,500 ÷ 690,000 = 0.45 × 100 = 45%

Therefore, if partnership reports income of $184,000, the income credited to Cox's capital account is calculated as follows

Cox's ratio = 30% of the income

= 30/100 × 184,000 = 0.3 × 184,000 = $55,200

Therefore, Cox receives $55,200