Question

Exercise 19.5 Computing and recording allocation of net income with interest allowed. LO 19-4 Reese and Cravens are partners. Their partnership agreement provides that, in dividing profits, each is to be allocated interest at 10 percent of her beginning capital balance. The balance of net income or loss after the interest allowances is to be split in the ratio of 60:40 to Reese and Cravens, respectively. The beginning capital balances were Reese, $115,000, and Cravens, $19,000. Net Income for the year was $235,000 DOO Compute the amount of net income to be allocated to each partner Reese Cravens Total Net Income $ 235,000 Salary Allowances Interest Allowances Total Sales and interest 0 $ 0 $ 0 235.000 Balance of income Balance of income allocated Income of each partner 0S 0S 0

Answer 1

	Reese	Cravense	Total
Net income			$2,35,000
Salary allowance	___	___
Interest allowance	11,500	1,900
Total salary and interest(a)	$11,500	$1,900	$13,400
Balance of income			$2,21,600
Balance of income allocated(b)	1,32,960	88,640
Income of each partner(a+b)	$1,44,460	$90,540	$2,35,000

Workings:

Interest on capital - Reese: (115000 X 10%) = 11500

Cravense: (19000 X 10%)= 1900

Share of profit - Reese : (221600 X 60%)= 132960

Cravense: (221600 X 40%)= 88640