Question

Tyler Hawes and Piper Albright formed a partnership, investing $456,000 and $228,000, 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 $108,000 and $150,000, respectively, and the balance divided equally.

Allowance of interest at the rate of 18% on original investments, salary allowances of $108,000 and $150,000, respectively, and the remainder divided equally.

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

Answer 1

Solution :

Division of Income
S. No.	Particulars	Total	Tyler Hawes	Piper Albright
a	No agreement concerning division of net income
	Net Income (1:1)	$414,000.00	$207,000.00	$207,000.00
b	Divided in the ratio of original capital investment
	Net Income (2:1)	$414,000.00	$276,000.00	$138,000.00
c	Interest at the rate of 18% allowed on original investments and the remainder divided in the ratio of 2:3.
	Net Income	$414,000.00
	Interest on capital	$123,120.00	$82,080.00	$41,040.00
	Remaining income (2:3)	$290,880.00	$116,352.00	$174,528.00
	Total share of income	$414,000.00	$198,432.00	$215,568.00
d	Salary allowances of $108,000 and $150,000, respectively, and the balance divided equally.
	Net Income	$414,000.00
	Salary Allowance	$258,000.00	$108,000.00	$150,000.00
	Remaining income (1:1)	$156,000.00	$78,000.00	$78,000.00
	Total share of income	$414,000.00	$186,000.00	$228,000.00
e	Interest on capital, Salary allowance and ramainder equally:
	Net Income	$414,000.00
	Interest on capital	$123,120.00	$82,080.00	$41,040.00
	Salary Allowance	$258,000.00	$108,000.00	$150,000.00
	Remaining income (1:1)	$32,880.00	$16,440.00	$16,440.00
	Total share of income	$414,000.00	$206,520.00	$207,480.00