Question

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Dividing Partnership Net Income Required: Steve Jack and Chelsy Dane formed a partnership, dividing income as follows: 1. Annual salary allowance to Dane of $131,040. 2. Interest of 7% on each partner's capital balance on January 1. 3. Any remaining net income divided to Jack and Dane, 1:2. Jack and Dane had $99,000 and $81,000, respectively, in their January 1 capital balances. Net income for the year was $234,000. How much is distributed to Jack and Dane? Note: Compute partnership share. Jack: $ Dane: $ X

Answer 1

Solution Capital balance, Jack (January 1) $99,000 Capital balance, Dane (January 1) Net income for the year $81,000 $234,000 Annual salary allowance to Dane $131,040 Interest allowance on Capital to each Partner 7% Remaining income sharing ratio 1:2 Required: Distribution of net income amongst the Partners Total $234,000 $131,040 $12,600 Jack Dane (a) Net Income (b) Annual Salary allowances to Dane (c) Interest allowances (Refer WN-1) (d) Total salary and interest (b+c) (e) Balance of income (a - d) (fBalance allocated in the ratio of 1:2 (g) Balance of income (e-f) (h) Total shares of the partners (d f $131,040 $6,930 $5,670 $6,930 $136,710 $143,640 $90,360 $30,120 $60,240 $90,360 $0 $37,050 $196,950 WN -1: Interest allowance on Capital Jack Dane Capital balance as at January 1 $99,000 $81,000 Interest rate 7% 7% Interest allowances $6,930 $5,670 Jack's share $37,050 Dane's share $196,950