Question

Jensen and Stafford began a partnership to start a hardwood flooring installation business, by investing $160,000 and $200,000, respectively. They agreed to share profits/(losses) by providing yearly salary allowances of $150,000 to Jensen and $75,000 to Stafford, 20% interest allowances on their investments, and sharing the balance 3:2.

Required:
1. Determine each partner’s share if the first-year profit was $420,000.

2. Independent of (1), determine each partner’s share if the first-year loss was $95,000. (Negative answers should be indicated by a minus sign.)

Answer 1

1.)				Amount $
		Jensen	Stafford	Total
	Net profit			420,000
	Less: Salary allowance	150,000	75,000	225,000
	Balance			195,000
	Less: Interest allowance (20% of investments )	32,000	40,000	72,000
	Balance			123,000
	Less: Remaining in 3 : 2	73,800	49,200	123,000
	Balance			-
	Partner's Share in Net Profit	255,800	164,200	420,000
2.)				Amount $
		Jensen	Stafford	Total
	Net profit (loss )			-95,000
	Less: Salary allowance	150,000	75,000	225,000
	Balance			-320,000
	Less: Interest allowance (20% of investments )	32,000	40,000	72,000
	Balance			-392,000
	Less: Remaining in 3 : 2	-235,200	-156,800	-392,000
	Balance			-
	Partner's Share in Net loss	-53,200	-41,800	-95,000