Question

Ramer and Knox began a partnership by investing $60,000 and $90,000, respectively. During its first year, the partnership earned $160,000. Prepare calculations showing how the $160,000 income is allocated under each separate plan for sharing income and loss. 1. The partners did not agree on a plan and therefore share income equally. 2. The partners agreed to share income and loss in proportion to their initial investments 3. The partners agreed to share income by giving a $50,000 per year salary allowance to Ramer, a $40,000 per year salary allowance to Knox, 10% interest on their initial capital investments, and the remaining balance shared equally.

im confused with how they broke down how to do it in parts

Answer 1

(1) -- The partners did not agree on a plan and therefore share income equally.

Answer -

Particulars	Explanation	Amount ($)
Ramer's share of income	$160000 / 2	80000
Knox's share of income	$160000 / 2	80000

.

(2) -- The partners agreed to share income and loss in proportion to their initial investments.

Answer -

Particulars	Explanation	Amount ($)
Ramer's share of income	(Partners' capital balance / Total partnership capital) * Net income = [$60000 / ($60000+$90000)] * $160000	64000
Knox's share of income	(Partners' capital balance / Total partnership capital) * Net income = [$90000 / ($60000+$90000)] * $160000	96000

.

(3) -- The partners agreed to share income by granting a $50000 per year salary allowance to Ramer, a $40000 per year salary allowance to Knox, 10% interest on their initial capital investments, and the remaining balance shared equally.

Answer -

	Particulars	Explanation	Ramer ($)	Knox ($)	Total ($)
I.	Net income	Given in question	-	-	160000
	Allowances	-	-	-	-
II.	Salary allowances	Given in question	50000	40000	-
III.	Interest allowances	Ramer = ($60000 * 10%) Knox = ($90000 * 10%)	6000 -	- 9000	- -
IV.	Total allowances	II + III	56000	49000	105000
V.	Balance of income	I - IV	-	-	55000
VI.	Remainder shared equally	$55000 / 2	27500	27500	55000
VII.	Balance of income	V - VI	-	-	0
	Income of each partner	IV + VI	83500	76500	-