Question

The WOW partnership agreement stipulates a salary, interest on beginning capital, and profit & loss ratios as follows: Salary Interest P/L Ratio Beg. Capital Wendy $10,000 20% $30,000 Amanda 20,000 10% 30% 20,000 Winona -0- 20% 50% 40,000 10% Make a schedule, labels in the left column, to show net income of $40,000 shared among the 3 partners. Wendy Amanda Winona $40,000 Salary 10,000 29,00 30,oo 1. Inhast 3,000 2,000 Guwa 13,nou P/ 2e to (600) I (900) (1500) (3000) Totals 12,400 21,100 6,500 $40,000

Please explain where the numbers I highlighted came from and the computations that were done to arrive at these numbers.

Answer 1

Solution:

If the net income has to be shown of $40000 then, following points needs to be considered.
Particulars	Amount in ($)	working
net income(A)	40000
less: salary(B)	30000	( $10000 to Wendy & $ 20000 to Amanda)
Less: Interest in capital©	13000	( capital invested by Wendy = $30000 & int. on cap is 10% therefore, $30000*.1=3000)
		( capital invested by Amanda = $20000 & int. on cap is 10% therefore, $20000*.1=2000)
		( capital invested by Winoma = $40000 & int. on cap is 20% therefore, $40000*.2=8000)
balance left as profit / loss	-3000	(distributed in P/L ratio i.e 2:3:5)
(A-B-C)		(share of loss to Wendy is 20% , therefore, (-$3000*.2=-$600)
		(share of loss to Amanda is 30% , therefore, (-$3000*.3=-$900)
		(share of loss to Winona is 50% , therefore, (-$3000*.5=-$1500)

Working
	Wendy(amt in $)	Amanda(amt in $)	Winona(amt in $)
Salary(A)	10000	20000	0
Interest(B)	3000	2000	8000
P/l Ratio©	-600	-900	-1500
(A+B+C)	12400	21100	6500