Question

Dividing Partnership Income Tyler Hawes and Piper Albright formed a partnership, Investing $195,000 and $65,000, respectively. Determine their participation in the year's net income of $300,000 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 5% allowed on original investments and the remainder divided in the ratio of 2:3. d. Salary allowances of $36,000 and $47,000, respectively, and the balance divided equally. e. Allowance of interest at the rate of 5% on original investments, salary allowances of $36,000 and $47,000, respectively, and the remainder divided equally. Hawes Albright

Answer 1

Answer to Question 1.

Part a.

	Hawes	Albright
Net Income (Ratio = 1:1)	150,000	150,000

Hawes's share in Net Income = $300,000 * 1/2 = $150,000

Albright's share in Net Income = $300,000 * 1/2 = $150,000

Part b.

Capital Contribution Ratio = $195,000 : $65,000

Capital Contribution Ratio = 3: 1

	Hawes	Albright
Net Income (Ratio = 3: 1)	225,000	75,000

Hawes's share in Net Income = $300,000 * 3/4 = $225,000

Albright's share in Net Income = $300,000 * 1/4 = $75,000

Part c.

	Hawes	Albright	Total
Interest Allowance	9,750	3,250	13,000
Division of Remaining Income (Ratio = 2:3)	114,800	172,200	287,000
Net Income	124,550	175,450

Interest Allowance, Hawes = $195,000 * 5% = $9,750

Interest Allowance, Albright = $65,000 * 5% = $3,250

Remaining Income = $300,000 - $13,000 = $287,000

Part d.

	Hawes	Albright	Total
Salary Allowances	36,000	47,000	83,000
Division of Remaining Income (Ratio = 1:1)	108,500	108,500	217,000
Net Income	144,500	155,500

Remaining Income = $300,000 - $83,000 = $217,000

Part e.

	Hawes	Albright	Total
Interest Allowances	9,750	3,250	13,000
Salary Allowances	36,000	47,000	83,000
Division of Remaining Income (Ratio = 1:1)	102,000	102,000
Net Income	147,750	152,250

Remaining Income = $300,000 - $13,000 - $83,000 = $204,000