Seth and Rachel have original investments of $50,000 and $100,000, respectively, in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%; salary allowances of $27,000 and $18,000, respectively; and the remainder divided equally. How much of the net loss of $16,000 is allocated to Seth?

A. $4,000.

B. $6,000.

C. $16,000.

D. $8,000.

D. $8,000.

Explanation:

*Net loss is considered as the amount to be allocated between partners on equal sharing ratio. Otherwise the net allocated amount will be 76,000 (-16000-5000-10000-27000-18000) net loss and Seth's share will be - 38,000 (76000/2). Question has no option of this amount.

Statement of Partners Equity

For the Year end MM-DD-YY

Seth Rachel

$ $

Beginning Capital balance = 0 0

Investment by partners = 50,000 100,000

interest Allowance = 5000 10,000

Salary Allowance = 27000 18,000

Net loss Allocated = (8,000) (8,000)

Ending capital balance = 74,000 120,000