Accounting Midterm Exam ACG-2011: Question 32

Smith, West, and Krug form a partnership. Smith contributes $198,000, West contributes $165,000, and Krug contributes $297,000. Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $195,000 for its first year, what amount of income is credited to West's capital account?

	$63,900.
	$62,250.
	$65,000.
	$68,850.
	$54,000.

$660,000 × 0.05 = $33,000 for interest allowance

$195,000 – $33,000 = $162,000 / 3 = $54,000 remainder divided equally

$165,000 × 0.05 = $8,250 interest allowance for West

$8,250 + $54,000 = $62,250