Question

Dividing Partnership Income Tyler Hawes and Piper Albright formed a partnership, investing $120,000 and $180,000, respectively. Determine their participation in the year's net income of $280,000 under each of the following independent assumptions: a. No agreement concerning division of net income. b. Divided in the ratio of original capital investment. c. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:3. d. Salary allowances of $40,000 and $45,000, respectively, and the balance divided equally. e. Allowance of interest at the rate of 6% on original investments, salary allowances of $40,000 and $45,000, respectively, and the remainder divided equally, Hawes Albright @ @

Answer 1

Answers	Hawes	Albright
a. …………………………………………………………………	$140,000	$140,000
b. …………………………………………………………………	1,12,000	1,68,000
c. …………………………………………………………………	1,12,000	1,68,000
d. …………………………………………………………………	1,37,500	1,42,500
e. …………………………………………………………………	1,37,700	1,46,300

Workings	Hawes	Albright	Total
a. Net income (1:1)	$140,000	$140,000	$280,000
b. Net income (2:3) …	$112,000	$ 168,000	$280,000
c. Interest allowance	$ 7,200 (Note.1)	$ 10,800 (Note.2)	$ 18,000
Remaining income (2:3)	1,04,800	1,57,200	2,62,000
Net income	$112,000	$168,000	$280,000
d. Salary allowance	$ 40,000	$ 45,000	$ 85,000
Remaining income (1:1)	97,500	97,500	1,95,000
Net income	$137,500	$142,500	$280,000
e. Interest allowance	$ 7,200 (Note.1)	$ 10,800 (Note.2)	$ 18,000
Salary allowance	40,000	45,000	81,000
Remaining income (1:1)	90,500	90,500	1,81,000
Net income	$137,700	$146,300	$280,000

Note:

1. $120,000 × 6% = $7,200
2. $180,000 × 5%. = $10,800