Income allocation in a partnership Assume that the partners of Exercise 19-4 agreed to...

Income allocation in a partnership

Assume that the partners of Exercise 19-4 agreed to share net income and loss by granting annual salary allowances of $50,000 to Kramer and $40,000 to Knox, 10% interest allowances on their investments, and any remaining balance shared equally.

1. Determine the partners’ shares of Kramer and Knox given a first-year net income of $98,800.

2. Determine the partners’ shares of Kramer and Knox given a first-year net loss of $16,800.

Reference Exercise 19-4:

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.