Question

Steve King and Chelsy Dane formed a partnership, dividing income as follows: 1.Annual salary allowance to Dane of $154,560. 2.Interest of 7% on each partner's capital balance on January 1. 3.Any remaining net income divided to King and Dane, 1:2. King and Dane had $63,000 and $105,000, respectively, in their January 1 capital balances. Net income for the year was $276,000. How much is distributed to King and Dane? Note: Compute partnership share.

Answer 1

Answer

• All working forms part of the answer
• Working

			Net Income
	Steve King	Chelsy Dane	Distributed	To be distributed
Net Income				$276,000
Salary Allowance	$0	$154,560	$154,560	$121,440
Interest on Capital at 7%	$4,410	$7,350	$11,760	$109,680
$109,680 shared in ratio of 1:2	$36,560 [109680 x 1/3]	$73,120 [109680 x 2/3]	$109,680	$0
Total Net Income distributed = ANSWER	$40,970	$235,030	$276,000

• Answer:

Amount distributed to Steve King = $ 40,970
Amount distributed to Chelsy Dane = $ 235,030

Partnership share:
Steve King = 1/3 or 33.333%
Chelsy Dane = 2/3 or 66.667%