Question

Lia Chen and Martin Monroe formed a partnership, dividing income as follows: Annual salary allowance to Chen of $35,000. Interest of 4% on each partner’s capital balance on January 1. Any remaining net income divided to Chen and Monroe, 2:1. Chen and Monroe had $90,000 and $140,000, respectively, in their January 1 capital balances. Net income for the year was $70,000. Required: How much net income should be distributed to Chen and Monroe? Chen: $ Monroe: $ Feedback Set up a column for each partner and a total column. The amount of net income that should be distributed to each partner should include: the partner's salary allowa

Answer 1

Answer

• The following schedule is prepared to show you how the $ 70,000 of Net Income will be distributed.

			Net Income
	Lia Chen	Martin Monroe	Distributed	To be distributed
Net Income				$70,000
Salary Allowance	$35,000	$0	$35,000	$35,000
Interest on Capital at 4%	$3,600	$5,600	$9,200	$25,800
$25,800 shared in ratio of 2:1	$17,200 [25800 x 2/3]	$8,600 [25800 x 1/3]	$25,800	$0
Total Net Income distributed	$55,800 = Answer	$14,200 = Answer	$70,000