Given:

10% interest per year - credit to partners R & S based on a weighted-ave capital balances. Summary of capital below:

Balance, Jan 1          = $140,000

Add'l Invest, July 1    =    40,000

W/drawal, Aug 1       =    (15,000)

Balance, Dec 31        = 165,000

Compute: Interest s/b credited to S capital acct?

Wiley's Ans:

$140,000 X 6/12 = $70,000

  180,000 X 1/12 =  15,000

  165,000 X 5/12 =  68,750

  Total = $153,750 X 10% = $15,375.

Question:

Where did those number of months (6/12,1/12,5/12) come from? 

Compared with (Jan 1, July 1, Dec 31)?

I'm a little lost. Thanks for your help.

140,000 are outstanding for 6 months (JAN-JUN)

180,000 outstanding for just one month (july)

165,000 outstanding for the remaining 5 months (AUG-DEC).

Weighted average means you have to weight the balances with the months outstanding for each balance.

Hope that  helps

Thanks cinnamon.

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