Question

eBook Show Me How Calculator Print item Dividing Partnership Income Tyler Hawes and Piper Albright formed a partnership, Investing $112,000 and $168,000, respectively. Determine their participation in the year's net income of $109,000 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 6% allowed on original Investments and the remainder divided in the ratio of 2:2. d. Salary allowances of $34,000 and $47,000, respectively, and the balance divided equally. e. Allowance of interest at the rate of 6% on original investments, salary allowances of $34,000 and $47,000, respectively, and the remainder divided equally Hawes Albright @ @ @

Answer 1

Solution:

Division of Income		$109,000
S. No	Particulars	Hawes	Albright
a	No agreement concerning division of net income (1:1)	$54,500.00	$54,500.00
b	Divided in the ratio of original capital investment (2:3)	$43,600.00	$65,400.00
c	Interest of 5% on original investment and remainder in ratio 2:3
	Interest Amount (Opening Capital * 6%) Hawes (112000*6%) Albright (168000*6%)	$6,720.00	$10,080.00
	Distribution of remaining income (2:2) Remainder income= ($109,000 - $6,720 - $10,080) = 92,200	$46,100.00	$46,100.00
	Total Share of Income (Interest + Remaining Distribution)	$52,820	$56,180
d	Salary allowance and balance divided equally
	Salary allowances to partner	$34,000.00	$47,000.00
	Distribution of remaining income (1:1) Remainder income= ($109,000 - $34,000 - $47,000) = 28,000	$14,000.00	$14,000.00
	Total Share of Income	$48,000	$61,000
e	Interest of 18% on original investment, Salary Allowances and remainder in the ratio of 1:1
	Interest Amount (Opening Capital * 6%) Hawes (112000*6%) Albright (168000*6%)	$6,720.00	$10,080.00
	Salary Allowance	$34,000.00	$47,000.00
	Distribution of remaining income (1:1)	$5,600.00	$5,600.00
	Total Share of Income (Interest + Salary + Remaining Distribution)	$46,320.00	$62,680.00