Question

Exercise 15-5

On January 1, 2016, Tony and Jon formed T&J Personal Financial Planning with capital investments of $482,900 and $339,900, respectively. The partners wanted to draft a profit and loss agreement that would reward each individual for the resources invested in the partnership. Accordingly, the partnership agreement provides that profits are to be allocated as follows:

1.		Annual salaries of $41,400 and $65,100 are granted to Tony and Jon, respectively.
2.		In addition to the salary, Jon is entitled to a bonus of 10% of net income after salaries and bonus but before interest on capital investments is subtracted.
3.		Each partner is to receive an interest credit of 8% on the original capital investment.
4.		Remaining profits are to be allocated 40% to Tony and 60% to Jon.

On December 31, 2016, the partnership reported net income before salaries, interest, and bonus of $191,100.

Calculate the 2016 allocation of partnership profit. (Round answers to 0 decimal places, e.g. 5,125.)

		Tony		Jon
Income allocation		$		$

Answer 1

Solution:

Division of Income
Particulars	Tony	Jon	Total
Total Income			$191,100.00
Salaries	$41,400.00	$65,100.00	$106,500.00
Balance of income			$84,600.00
Bonus to Jon ($84,600*10/110)	$0.00	$7,691.00	$7,691.00
Balance of income			$76,909.00
Interest on original capital	$38,632.00	$27,192.00	$65,824.00
Balance of income (4:6)	$4,434.00	$6,651.00	$11,085.00
Total Share of income	$84,466.00	$106,634.00	$191,100.00