Question

Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their participation in the year's net income of $200,000 under each of the following independent assumptions:

1. No agreement concerning division of net income;
2. Divided in the ratio of original capital investment;
3. Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3;
4. Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally;
5. Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

Answer 1

Req a.
Statement showing allocation of Income
			Holly	Luke	Total
Net Income				2,00,000
Income shared equally	1,00,000	1,00,000	-2,00,000
Share of Income of each partner	1,00,000	1,00,000
Req b.
Statement showing allocation of Income
			Holly	Luke	Total
Net Income				2,00,000
Income shared in ratio of 3:1	1,50,000	50,000	-2,00,000
Share of Income of each partner	1,50,000	50,000
Req c.
Statement showing allocation of Income
			Holly	Luke	Total
Net Income				2,00,000
Interest allowance		36000	12000	-48,000
Remaining income				1,52,000
Income shared in ratio of 2:3	60,800	91,200	-1,52,000
Share of Income of each partner	96,800	1,03,200
Req d.
Statement showing allocation of Income
			Holly	Luke	Total
Net Income				2,00,000
Salary allowance		50000	70000	-1,20,000
Remaining income				80,000
Income shared in ratio of 1:1	40,000	40,000	-80,000
Share of Income of each partner	90,000	1,10,000
Req e.
Statement showing allocation of Income
			Holly	Luke	Total
Net Income				2,00,000
Salary allowance		50000	70000	-1,20,000
Remaining income				80,000
Interest allowance		36000	12000	-48,000
Remaining income				32,000
Income shared in ratio of 1:1	16,000	16,000	-32,000
Share of Income of each partner	1,02,000	98,000