Question

1. 2. Dividing Partnership Income

   Tyler Hawes and Piper Albright formed a partnership, investing $120,000 and $180,000, respectively.

   Determine their participation in the year's net income of $110,000 under each of the following independent assumptions:

2. No agreement concerning division of net income.
3. Divided in the ratio of original capital investment.
4. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:2.
5. Salary allowances of $40,000 and $46,000, respectively, and the balance divided equally.
6. Allowance of interest at the rate of 6% on original investments, salary allowances of $40,000 and $46,000, respectively, and the remainder divided equally.

7. 	Hawes	Albright
   (a)	$	$
   (b)	$	$
   (c)	$	$
   (d)	$	$
   (e)	$	$

Answer 1

	Hawes	Albright
(a)	$     55,000	$     55,000
(b)	$     44,000	$     66,000
(c)	$     53,200	$     56,800
(d)	$     52,000	$     58,000
(e)	$     50,200	$     59,800

Working:

(a)

	Hawes	Albright	Total
Net income (1:1)	55000	55000	110000

In the absence of an agreement, the net income will be divided equally amongst all partners.

(b)

	Hawes	Albright	Total
Net income	44000	66000	110000

Hawes: $110000 x $120000/($120000 + $180000) = $44000

Albright: $110000 x $180000/($120000 + $180000) = $66000

(c)

	Hawes	Albright	Total
Interest (6% x $120000);(6% x $180000)	7200	10800	18000
Remaining balance (2:2)	46000	46000	92000
Net income	53200	56800	110000

(d)

	Hawes	Albright	Total
Salary allowance	40000	46000	86000
Remaining balance (1:1)	12000	12000	24000
Net income	52000	58000	110000

(e)

	Hawes	Albright	Total
Interest (6% x $120000);(6% x $180000)	7200	10800	18000
Salary allowance	40000	46000	86000
Remaining balance (1:1)	3000	3000	6000
Net income	50200	59800	110000