Jerry, a partner in the JSK partnership, begins the year on January 1, 2018 with a capital balance of $20,000. The JSK partnership agreement states that Jerry receives 6% interest on his monthly weighted average capital balance without regard to normal drawings. Each partner draws $5,000 in cash from the business every quarter. Any withdrawal in excess of that will be accounted for as a direct reduction of the partner’s capital balance.On March 1, 2018, when the partnership tax return for 2017 was completed, Jerry’s capital account was credited for his share of 2017 profit of $120,000. Jerry withdrew $5,000 quarterly, beginning March 31st.On September 1, Jerry’s capital account was credited with a special bonus of $60,000 for business he brought to the partnership.What amount of interest will be attributed to Jerry for the year 2018 that will go toward his profit distribution for the year?$6,000$6,250$7,950$8,400None of these choices are correct

Monthly weighted average capital balance of Jerry in 2018 = $20,000*2/12 + ($20,000 + $120,000)*…

Answered: Jerry, a partner in the JSK…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Jerry, a partner in the JSK partnership, begins the year on January 1, 2018 with a capital balance of $20,000. The JSK partnership agreement states that Jerry receives 6% interest on his monthly weighted average capital balance without regard to normal drawings. Each partner draws $5,000 in cash from the business every quarter. Any withdrawal in excess of that will be accounted for as a direct reduction of the partner’s capital balance.

On March 1, 2018, when the partnership tax return for 2017 was completed, Jerry’s capital account was credited for his share of 2017 profit of $120,000.
Jerry withdrew $5,000 quarterly, beginning March 31st.
On September 1, Jerry’s capital account was credited with a special bonus of $60,000 for business he brought to the partnership.

What amount of interest will be attributed to Jerry for the year 2018 that will go toward his profit distribution for the year?

$6,000
$6,250
$7,950
$8,400
None of these choices are correct

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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