Income allocation in a partnership
Kramer and Knox began a partnership by investing $60,000 and $80,000, respectively. During its first year, the partnership earned $160,000. Prepare calculations showing how the $160,000 income should be allocated to the partners under each of the following three separate plans for sharing income and loss:
(1) the partners failed to agree on a method to share income; (2) the partners agreed to share income and loss in proportion to their initial investments (round amounts to the nearest dollar); and (3) the partners agreed to share income by granting a $50,000 per year salary allowance to Kramer, a $40,000 per year salary allowance to Knox, 10% interest on their initial capital investments, and the remaining balance shared equally.
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