Question

The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business's profit or loss in the following sequence:

  

•	Jones, the managing partner, receives a bonus equal to 25 percent of the business’s profit.
•	Each partner receives 12 percent interest on average capital investment.
•	Any residual profit or loss is divided equally.

  

The average capital investments for 2015 were as follows:

  

Jones	$	200,000
King		400,000
Lane		600,000

  

How much of the $88,000 partnership profit for 2015 should be assigned to each partner?

	Income Assignment
Jones
King
Lane

Answer 1

	Jones	King	Lane	Total
Partnership Profit				$88,000
Bonus to Jones	$22,000			($22,000)
Interest on Capital	$24,000	$48,000	$72,000	($144,000)
Total Loss of Partnership				($78,000)
Loss Allocated to Partners	($26,000)	($26,000)	($26,000)	$78,000
Income Assigned to each partner	$20,000	$22,000	$46,000	$88,000

	Income Assignment
Jones	$20,000
King	$22,000
Lane	$46,000