Question

Tyler Hawes and Piper Albright formed a partnership, investing $65,000 and $195,000, respectively.

Determine their participation in the year's net income of $285,000 under each of the following independent assumptions:

1. No agreement concerning division of net income.
2. Divided in the ratio of original capital investment.
3. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:3.
4. Salary allowances of $38,000 and $47,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 6% on original investments, salary allowances of $38,000 and $47,000, respectively, and the remainder divided equally.

Answer 1

	Tyler Hawes	Piper Albright	Total	Remarks
No agreement concerning division of net income	$      142,500	$          142,500	$   285,000	Division will be made equally.
Divided in the ratio of original capital investment	$        71,250	$          213,750	$   285,000	In ratio of 65,000 : 195,000 or 1 : 3
Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:3
Interest on original investment	$          3,900	$            11,700	$     15,600	6% on 65,000 and 195,000
Remaining income	$      107,760	$          161,640	$   269,400	Balance income in 2:3 ratio
Net Income	$      111,660	$          173,340	$   285,000
Salary allowances of $38,000 and $47,000, respectively, and the balance divided equally
Salary allowance	$        38,000	$            47,000	$     85,000	Salary as given
Remaining income	$      100,000	$          100,000	$   200,000	Balance income 1 : 1
Net Income	$      138,000	$          147,000	$   285,000
Allowance of interest at the rate of 6% on original investments, salary allowances of $38,000 and $47,000, respectively, and the remainder divided equally
Interest on original investment	$          3,900	$            11,700	$     15,600	6% on 65,000 and 195,000
Salary allowance	$        38,000	$            47,000	$     85,000	Salary as given
Remaining income	$        92,200	$            92,200	$   184,400	Balance income 1 : 1
Net Income	$      134,100	$          150,900	$   285,000