Question

Shah and Ruben formed a partnership. shah contributed 400,000 in cash and Ruben contributed assets with fair market value of 800,000. The partnership in its inital year reported net income of 240000. calculate the distribution of the first years income to the partners under each of the following. 1. Shah and Ruben failed to includ stated ratios in the partnership agreement. 2 shah and Ruben agreed to share income and losses in a 3:2 ratio 3. Shah and Ruben agreed to share income and losses int eh ratio of their original investments. shah and Ruben agreed to share income and losses by allowing 10% interest or original investments and sharing any remainder equally.

Answer 1

Calculate the distribution of First Year's Income to the Partners:

When Shah and Ruben failed to include stated ratios in the partnership agreement:

Shah = $240,000*1/2

= $120,000

Ruben = $240,000*1/2

= $120,000

Note: When nothing is mentioned about sharing ratios in the Partnership Agreement then allocation will be done equally to both the partners.

When Shah and Ruben have agreed to share the income and losses in the ratio of 3:2:

Shah = $240,000*3/5

= $144,000

Ruben = $240,000*2/5

= $96,000

When Shah and Ruben have agreed to share the income and losses in the ratio of their original investments:

Shah = $240,000*$400,000/$1,200,000

= $80,000

Ruben = $240,000*$800,000/$1,200,000

= $160,000

When Shah and Ruben have agreed to share the income and losses by allowing 10% interest on original investment and sharing any reminder equally: