Question

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $210,000 and $70,000, respectively.

Determine their participation in the year's net income of $280,000 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 $40,000 and $46,000, respectively, and the balance divided equally.
5. 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.

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

Answer 1

a.
If no agreement concerning division of net income is provided then net income is divided between partners equally
Division of income for each of the partners is shown below
Hawes	$140,000	280000*50%
Albright	$140,000	280000*50%
b.
Calculation of division of income between partners in the ratio of capital invested
Hawes	$210,000	280000*(210000/280000)
Albright	$70,000	280000*(70000/280000)
c.
Calculation of division of income
	Hawes	Albright	Total
Net income			$280,000
Less: Interest on capital	$12,600	$4,200	$16,800
	(210000*6%)	(70000*6%)
Available net income			263200
Allocation of net income	$105,280	$157,920
	263200*(2/5)	263200*(3/5)
Total income allocated	$117,880	$162,120	$280,000
d.
Calculation of division of income
Net income	$280,000
Less: Salary paid	$86,000	(40000+46000)
Remaining net income	$194,000
Balance amount equally divided	$97,000	194000/2
	Hawes	Albright
Salary	$40,000	$46,000
Net income allocated	$97,000	$97,000
Total income divided	$137,000	$143,000
e.
	Hawes	Albright
Interest on capital	$12,600	$4,200
	(210000*6%)	(70000*6%)
Salary	40000	46000
Total income distributed	$52,600	$50,200	$102,800
Balance income available	280000-102800
Balance income available	$177,200
Balance income divided	$88,600	177200/2
	Hawes	Albright
Interest on capital	$12,600	$4,200
Salary	$40,000	$46,000
Balance income divided	$88,600	$88,600
Total income allocated	$141,200	$138,800