Question

Rodgers and Winter had capital balances of $60,000 and $90,000, respectively, at the beginning of the current fiscal year. The articles of partnership provide for salary allowances of $25,000 and $30,000, respectively; an allowance of interest at 12% on the capital balances at the beginning of the year; and the remaining net income divided equally. Net income for the current year was $110,000.

a. Present the Division of net income section of the income statement for the current year.

Net income				$110,000
		Rodgers		Winter		Total
Division of net income:
	Salary allowance	$		$		$
	Interest allowance
	Total
Net income		$		$		$

b. Assuming that the net income had been $65,000 instead of $110,000, present the Division of net income section of the income statement for the current year.

Net income				$65,000
			Rodgers		Winter		Total
Division of net income:
	Salary allowance		$		$		$
	Interest allowance
	Total
Net income			$		$		$

Answer 1

Answer:

	Ans. A
	Net income	1,10,000
		Rodgers	Winter	Total
	Division of net income
A	Salary allowance	25,000	30,000	55,000
B	Interest allowance(60000*12%)(90000*12%)	7,200	10,800	18,000
C	Remaining income(37000/2	18,500	18,500	37,000
D=A+B+C	Net income	50,700	59,300	1,10,000
	*Remaining income = Net income - (salary allowance + interest allowance)
	110000 - (55000 + 18000)
	110000 - 73000
	37000
	Ans. B
	Net income	65,000
		Rodgers	Winter	Total
	Division of net income
A	Salary allowance	25,000	30,000	55,000
B	Interest allowance	7,200	10,800	18,000
C=A+B	Total	32,200	40,800	73,000
D	Excess of allowance over net income(8000/2)	-4,000	-4,000	-8,000
E=C-D	Net income	28,200	36,800	65,000
	CALCULAITON FOR B:
	Excess of allowance over net income = Net income - Total allowances
	=   65000 - 73000
	=-8000