Question

ividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $187,500 and $62,500, respectively.

Determine their participation in the year's net income of $270,000 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 6% allowed on original investments and the remainder divided in the ratio of 2:3.
4. Salary allowances of $34,000 and $50,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 6% on original investments, salary allowances of $34,000 and $50,000, respectively, and the remainder divided equally.

	Hawes	Albright
(a)	$	$
(b)	$	$
(c)	$	$
(d)	$	$
(e)	$	$

Answer 1

Distribution of profit( Net income $270,000) Hawes($) Albright($) Particulars a. Devided equally as there is no agreement( i.e 1: 1) 1,35,000 1,35,000 1,35,000 1,35,000 Total b. Devided in the ratio of their capital investment (i.e 3:1) Total 2,02,500 2,02,500 67,500 67,500 c. Interest @ 6% 11,250 3,750 Remaning 255,000 in the ratio of 2:3 Total 1,02,000 1,13,250 1,53,000 1,56,750 d. Salary Remaining 186,000 equally Total 34,000 93,000 1,27,000 50,000 93,000 1,43,000 e. Interest @6% Salary Remaining 171,000 equally Total 11,250 34,000 85,500 1,30,750 3,750 50,000 85,500 1,39,250

Note: Capital ratio is 3:1 i.e. 187,500/62,500 = 3:1.