W. Bell and C. Quirk started a partnership in 2012. Because Bell contributed a l

Question

W. Bell and C. Quirk started a partnership in 2012. Because Bell contributed a larger amount toward the partnership at inception, the partnership agreement specified the following split of profits and losses in a two-phase allocation. The first allocation would split profits and losses in proportion to the partners’ relative capital balances up to 20% of those balances. The remainder would be split evenly. At the end of the first year, the partnership had a net loss of $40,000. Partners’ capital balances were as follows: W. Bell: $102,000 C. Quirk: $18,000 How much of the net loss was allocated to C. Quirk?

Explanation / Answer

total loss= $ 40,000

bell capital balance = $ 102,000

quirk capital balance = $ 18,000

loss allocation to bell upto 20 % capital balances = $ 102,000*20/100= $ 20,400

loss allocation to quirk upto 20% capital balances = $ 18,000*20/100 = $ 3,600

remaing loss = $ 40,000- $ 24,000

= $ 16,000

this loss sharing equally= $ 16,000/2= $ 8,000

net loss allocated to quirk is = $ 3,600+ $ 8,000

= $ 11,600.

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