Question

Holly and Luke formed a partnership, investing $240,000 and $80,000, respectively. Determine their participation in the year's net income of $380,000 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 15% allowed on original investments and the remainder divided in the ratio of 2:3; Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally; Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally. Holly Luke Total a. $ $ $ b. $ $ $ c. $ $ $ d. $ $ $ e. $ $ $

Answer 1

Answer:

Calculation of net incomes of each partner as per different assumptions:

Assumption	Working (Amount in $)	Holly (Amount in $)	Luke (Amount in $)
A) No agreement concerning division of net income	Divided in equal ratio = 3,80,000/2 = 1,90,000 each	1,90,000	1,90,000
B) Divided in the ratio of original capital investment	In the ratio of 3:1 (2,40,000 : 80,000) for 3,80,000	2,85,000	95,000
C) Interest at the rate of 15% allowed on original investments and the remainder divided in the ratio of 2:3	For Holly: (Maximum allowed interest rate is 12% for partners , since the question said to assume about that part we have taken it as 15% student can take 12% otherwise), so 2,40,000 x 15% = 36,000 For Luke = 80,000 x 15% =12,000 Remaining income = 3,80,000 - 36,000 - 12,000 = 3,32,000 Share: 332,000 x 2/5 =1,32,800 3,32,000 x 3/5 = 1,99,200 Total: Holly = 36,000 + 1,32,800 = 1,68,800 Luke = 12.000 + 1.99.200 = 2,11,200	1,68,800	2,11,200
D) Salary allowances of $50,000 and $70,000, respectively, and the balance divided equally	Holly = 50,000 & luke = 70,000 (salaries) Total = 3,80,000 -50,000-70,000 = 2,60,000 divided equally = 2,60,000/2 = 1,30,000 Now, for holly = 50,000+1,30,000 = 1,80,000 for luke = 70,000+1,30,000 = 2,00,000	1,80,000	2,00,000
E) Allowance of interest at the rate of 15% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally	Interest: Holly = 36,000 ( calculated above) + 50,000 =86,000 luke = 12,000 (calculated above) + 70,000 = 82,000 Total = 86,000+82,000 = 1,68,000 Remaining = 3,80,000 -1,68,000 = 2,12,000 divided equally = 2,12,000/2 = 1,06,000 each Now , total Holly= 86,000 + 1,06,000 = 1,92,000 Luke = 82,000 + 1,06,000 = 1,88,000	1,92,000	1,88,000

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