Question

Reese and Cravens are partners. Their partnership agreement provides that, in dividing profits, each is to be allocated interest at 10 percent of her beginning capital balance. The balance of net income or loss after the interest allowances is to be split in the ratio of 70:30 to Reese and Cravens, respectively. The beginning capital balances were Reese, $260,000, and Cravens, $68,000. Net income for the year was $125,000.

Compute the amount of net income to be allocated to each partner.

	Reese Cravens Total Net Income Salary Allowances Interest Allowances Total salaries and interest $0 $0 $0 Balance of Income 0 Balance of Income allocated Income of each partner $0 $0 $0

Answer 1

Answer

	Reese	Cravens	Total
Net Income			$125,000
Salary Allowances	$0	$0	$0
Interest Allowances	$26,000	$6,800	$32,800
Total salaries and interest	$26,000	$6,800	$32,800
Balance of Income			$92,200
Balance of Income allocated	$64,540	$27,660	$92,200
Income of each partner	$90,540	$34,460	$0