The
partnership agreement for Smith Wesson & Davis, a general
partnership, provided that profits be shared between the partners in the
ratio of their financial contributions to the partnership. Smith
contributed $80,000, Wesson contributed $48,000 and Davis contributed
$16,000. In the partnership's first year of operation, it incurred a
loss of $198,000. What amount of the partnership's loss, should be
absorbed by Smith? (Do not round your intermediate calculations and
round your final answer to the nearest whole dollar amount.)
| $22,000 | |
 | $110,000 |
| $49,500 | |
| $99,000 | |
| $66,000 |
|
If
the partnership agreement does not specifically address how losses are
to be allocated between the partners, the losses are to be shared in the
same manner as profits.
|
Therefore,
since Smith's capital contribution ($80,000) represented 5/9 of the
total capital upon formation ($80,000 + $48,000 + $16,000), Smith should
be allocated 5/9 of the $198,000 loss or $110,000.
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