Farrell and Jimmy enter into a partnership agreement on May 1, 2015. Farrell contributes $50,000 and Jimmy contributes $150,000 as their capital contributions. They decide to share profits and losses in the ratio of their respective capital account balances. The net loss for the year ended December 31, 2015 is $40,000. The capital account of Farrell should be ________ with the amount of loss. a. debited b. credited c. increased d. halved Solution Profit and loss sharing ratio Farrell = 50000/200000 =25% Jimmy = 150000/200000 = 75% Net Loss = $ 40000 Loss of Farrell = 40000*25% = $ 10000 Now it will decrease the capital of Farell . Therefore the capital account of Farrell should be Debited with the amount of loss. The correct anser is a. debited..

1. Farrell and Jimmy enter into a partnership agreement on May 1, 2015. Farrell contributes
$50,000 and Jimmy contributes $150,000 as their capital contributions. They decide to share
profits and losses in the ratio of their respective capital account balances. The net loss for the
year ended December 31, 2015 is $40,000. The capital account of Farrell should be ________
with the amount of loss.
a. debited
b. credited
c. increased
d. halved
Solution
Profit and loss sharing ratio
Farrell = 50000/200000 =25%
Jimmy = 150000/200000 = 75%
Net Loss = $ 40000
Loss of Farrell = 40000*25% = $ 10000
Now it will decrease the capital of Farell .
Therefore the capital account of Farrell should be Debited with the amount of loss.
The correct anser is
a. debited.