Question

Dividing Partnership Income Tyler Hawes and Piper Albright formed a partnership, investing $104,000 and $156,000, respectively. Determine their participation in the year's net income of $295,000 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 $38,000 and $48,000, respectively, and the balance divided equally. e. Allowance of interest at the rate of 6% on original investments, salary allowances of $38,000 and $48,000, respectively, and the remainder divided equally. Hawes Albright $147,500 $147,500 ཚེ $ $ $ @

Answer 1

a. No agreement concerning division of net income: If there is no agreement, Income or loss shall be divided equally among the partners. Hawes Albright ($295000 x 1/2; $295000x1/2) $ 147,500.00 $ 147,500.00 b. Divided in the ratio of Original Capital: Hawes Albright ($295000x($104000/($104000+$ 156000)); ($295000x$156000/ ($104000+$156000)) $ 118,000.00 $ 177,000.00 c. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:3 ratio: Hawes Albright Interest Allowance ($104000x6%;$156000x6%) 6,240.00 $ 9,360.00 Remainder ($295000- $15600)x2/5;3/5 111,760.00 $ 167,640.00 Total Distribution $ 118,000.00 $ 177,000.00

d. Salary allowances of $38000 and $48000 respectively, and the balance divided equally: Hawes Albright Salary Allowance 38,000.00 $ 48,000.00 Remainder Equally ($295000-$86000)x1/2;1/2 $ 104,500.00 $ 104,500.00 Total Distribution $ 142,500.00 $ 152,500.00 e. Allowance of Interest at the rate of 6% on original investments, salary allowances of $38000 and $48000 respectively and remainder divided equally: Hawes Albright Interest Allowance ($104000x6%;$156000x6%) $ 6,240.00 $ 9,360.00 Salary Allowance 38,000.00 $ 48,000.00 Remainder ($295000-$101600)x1/2;1/2 $ 96,700.00 $ 96,700.00 Total Distribution $ 140,940.00 $ 154,060.00