Question

Candace Hassell and Abby Lawson formed a partnership, investing $288,000 and $144,000, respectively.

Determine their participation in the year's net income of $384,000, under each of the following independent assumptions.

No agreement concerning division of net income.

Divided in the ratio of original capital investment.

Interest at the rate of 18% allowed on original investments and the remainder divided in the ratio of 2:3.

Salary allowances of $68,000 and $94,000, respectively, and the balance divided equally.

Allowance of interest at the rate of 18% on original investments, salary allowances of $68,000 and $94,000, respectively, and the remainder divided equally.

Answer 1

1. When there is no agreement concerning division of net income, profits and losses are shared equally by all partners.

	C. Hassell	A. Lawson	Total
Net income (1 : 1)	192000	192000	384000

2.

	C. Hassell	A. Lawson	Total
Net income	256000	128000	384000

C. Hassell = $384000 x $288000/($288000 + $144000) = $256000

A. Lawson = $384000 x $144000/($288000 + $144000) = $128000

3.

	C. Hassell	A. Lawson	Total
Interest	51840	25920	77760
Remaining income (2 : 3)	122496	183744	306240
Total $	174336	209664	384000

Interest - C. Hassell = 18% x $288000 = $51840

Interest - A. Lawson = 18% x $144000 = $25920

4.

	C. Hassell	A. Lawson	Total
Salary allowances	68000	94000	162000
Remaining income (1 : 1)	111000	111000	222000
Total $	179000	205000	384000

5.

	C. Hassell	A. Lawson	Total
Interest	51840	25920	77760
Salary allowances	68000	94000	162000
Remaining income (1 : 1)	72120	72120	144240
Total $	191960	192040	384000