Question

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $234,000 and $78,000, respectively.

Determine their participation in the year's net income of $414,000, 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 $50,000 and $70,000, respectively, and the balance divided equally.

Allowance of interest at the rate of 18% on original investments, salary allowances of $50,000 and $70,000, respectively, and the remainder divided equally.

	Hawes	Albright
(a)	$	$
(b)	$	$
(c)	$	$
(d)	$	$
(e)	$	$

Answer 1

		Profit Distribution
		$4,14,000
	Plan	Hawes	Albright
a.	Equal Division	$                                   2,07,000	$                                   2,07,000
		( $ 4,14,000 X 0.5)	( $ 4,14,000 X 0.5)
b.	In the ratio of Original Investments	$                                   3,10,500	$                                   1,03,500
		( $ 4,14,000 X 0.75)	( $ 4,14,000 X 0.25)
c.	Interest of 18% on Original Investment and remainder in the ratio 2:3	$                                   1,85,256	$                                   2,28,744
		$ 2,34,000 X 18% = $ 42,120	$ 78,000 X 18% = $ 14,040
		Remainder after paying Interest = ( $ 4,14,000 - $42,120 - $ 14,040) = $ 3,57,840 ( which is to be distributed in the ratio 2:3)
		.= ($ 3,57,840 X 2/5) + $ 42,120 = $1,85,256	.= ($ 3,57,840 X 3/5) + $ 14,040 = $2,28,744
d.	Salary allowance of $ 50,000 to Hawes and $ 70,000 to Albright remainder equally	$                                   1,97,000	$                                   2,17,000
		Salary allowance = $ 50,000	Salary allowance = $ 70,000
		Remainder after paying Salary = ( $ 4,14,000 - $ 50,000 -$70,000) = $2,94,000 ( which is to be distributed equally)
		.= ($2,94,000/2) + $ 50,000 = $1,97,000	.= ($2,94,000/2) + $ 70,000 = $2,17,000
e.	Interest of 18 % on Original Investment and Salary allowance of $ 50,000 to Hawes and $ 70,000 to Albright remainder equally	$                                   2,11,040	$                                   2,02,960
		$ 2,34,000 X 18% = $ 42,120	$ 78,000 X 18% = $ 14,040
		Salary allowance = $ 50,000	Salary allowance = $ 70,000
		Remainder after paying Interest & Salary = ( $4,14,000 - $ 42,120 - $ 14,040 -$ 50,000-$70,000) = $2,37,840 ( which is to be distributed equally)
		.= ($2,37,840/2) + $ 42,120 + $ 50,000 = $ 45,500	.= ($2,37,840/2) + $ 14,040 + $ 70,000 = $ 45,500