Question

Dividing Partnership Income Tyler Hawes and Piper Albright formed a partnership, investing $72,500 and $217,500, respectively. Determine their participation in the year's net income of $290,000 under each of the following independent assumptions: a. No agreement concerning division of net income. b. Divided in the ratio of original capital investment. c. Interest at the rate of 5% allowed on original investments and the remainder divided in the ratio of 2:3. d. Salary allowances of $34,000 and $50,000, respectively, and the balance divided equally. e. Allowance of interest at the rate of 5% on original investments, salary allowances of $34,000 and $50,000, respectively, and the remainder divided equally. Hawes Albright (a) 145,000 145,000 (b) (e)

Answer 1

Answer a)

If there is no agreement concerning division of income so it will be devided eually
	Hawes	Allbright
	=290000/2	=290000/2
	145000	145000

Answer b)

Hawes	Allbright
=290000*72500/290000	=290000*217500/290000
72500	217500
Total Capital investment	290000
Hawes	72500
Allbright	217500

Answer c)

	Hawes	Allbright
Interest On capital	3625	10875
Remaining Profit	110200	165300
Total	113825	176175
Interest on capital	=72500*5%	=217500*5%
Interest on capital	3625	10875
	Net Income	290000
	Less : Interest on capital(3625+10875)	14500
	Remaining Amount Divided into 2:3	275500
	Hawes Share(275500*2/5)	110200
	All Bright Share (275500*3/5)	165300
		275500

Answer D)

	Hawes	Allbright
Salary	34000	50000
Profit share	103000	103000
	137000	153000
	Balance Profit divided equally(290000-34000-50000)	206000
	Hawes(206000/2)	103000
	Allbright(206000/2)	103000

Answer E)

	Hawes	Allbright
Salary	34000	50000
Interest on Capital	3625	10875
Profit Share	95750	95750
	133375	156625
Balance Profit divided equally(290000-34000-50000-3625-10875)		191500
Hawes(206000/2)		95750
Allbright(206000/2)		95750