[cpa1988]

I’m confused on the calculations here. I did 140,000 x 6/12 + 180,000 x 1/12 + 165,000 x 5/12 = 16250 x 10% which is 1625 and obviously wrong. Just like what the heck even is this? Where in this book does is speak to weighted average calc w regards to partnerships? That would be really neat to find and make it easier to answer such problems. Can anyone explain? FAR on Monday, not feeling stellar about it at this juncture in my life.

The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to each partner on the basis of weighted-average capital balances. A summary of Simm’s capital account for the year ended December 31, is as follows:

Balance, January 1 $ 140,000

Additional investment, July 1 40,000

Withdrawal, August 1 (15,000)

Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account?

a. $15,250

b. $16,500

c. $17,250

d. $15,375

Explanation

Choice “d” is correct, $15,375 credited to Simm’s capital account.

Capital Month Weighted Average

account

activity

Balance, January 1 $ 140,000 x 6 mos = 840,000

Additional investment, July 1 40,000

Subtotal, July 1 $ 180,000 x 1 mo = 180,000

Withdrawal, August 1 (15,000)

Balance, 8/1 to 12/31 $ 165,000 x 5 mos =$ 825,000

Total Dollar Months $ 1,845,000

÷ 12 mos = 153,750

Interest rate × .10

Interest credited to Simm’s capital account $ 15,375

[Anonymous]

The way you calculated works as well, I just think you missed something when you were doing the math.

140,000*6/12 = 70,000

180,000*1/12 = 15,000

165,000*5/12 = 68,750

70,000+15,000+68,750 = 153,750

153,750*0.10 = 15,375

[Anonymous]

You are doing it right, your math is wrong.

140000 * 6/12 70000

180000 *1/12 15000

165000 *5/12 68750

153750*.1=15,375

[Author]

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