Question

Dividing Partnership Income Beau Dawson and Willow McDonald formed a partnership, investing $116,000 and $174,000, respectively. Determine their participation in the year's net income of $109,000 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 5% allowed on original investments and the remainder divided in the ratio of 2:3. Salary allowances of $34,000 and $48,000, respectively, and the balance divided equally. Allowance of interest at the rate of 5% on original investments, salary allowances of $34,000 and $48,000, respectively, and the remainder divided equally.

Answer 1

Solution:

Division of Income	$109,000
S. No	Particulars	Beau Dawson	Willow McDonald
a	No agreement concerning division of net income (1:1)	$54,500	$54,500
b	Divided in the ratio of original capital investment (116,000:174,000)	$43,600	$65,400
c	Interest of 5% on original investment and remainder in ratio 2:3
	Interest Amount (Opening Capital * 5%) Beau Dawson ($116,000*5%) Willow McDonald ($174,000*5%)	$5,800	$8,700
	Distribution of remaining income (2:3) Remainder income= ($109,000 - $5,800 - $8,700) = $94,500	$37,800	$56,700
	Total Share of Income (Interest + Remaining Distribution)	$43,600	$65,400
d	Salary allowance and balance divided equally
	Salary allowances to partner	$34,000	$48,000
	Distribution of remaining income (1:1) Remainder income = ($109,000 - $34,000 - $48,000) = $27,000	$13,500	$13,500
	Total Share of Income (Salary + Remaining Distribution)	$47,500	$61,500
e	Interest of 5% on original investment, Salary Allowances and remainder in the ratio of 1:1
	Interest Amount (Opening Capital * 5%) Beau Dawson ($116,000*5%) Willow McDonald ($174,000*5%)	$5,800	$8,700
	Salary Allowance	$34,000	$48,000
	Distribution of remaining income (1:1)     Remainder income = ($109,000 - $5,800 - $8,700 - $34,000 - $48,000) =	$6,250	$6,250
	Total Share of Income (Interest + Salary + Remaining Distribution)	$46,050	$62,950

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