Question

Ramer and Knox began a partnership by investing $64,000 and $94,000, respectively. The partners agreed to share net income and loss by giving annual salary allowances of $52,000 to Ramer and $41,600 to Knox, 10% interest allowances on their investments, and any remaining balance shared equally. (Enter all allowances as positive values. Enter losses as negative values.) Required: 1. Determine each partner's share given a first-year net income of $102,800. 2. Determine each partner's share given a first-year net loss of $20,800.

Answer 1

Interest allowance to Ramer= Ramer Capital x Interest rate

= 64,000 x 10%

= $6,400

Interest allowance to Knox = Knox capital x Interest rate

= 94,000 x 7%

= $9,400

Total income = $102,800

Total of salary allowance and interest allowance = $109,400

Remaining Loss= Total of salary allowance and interest allowance- Total income

= 109,400-102,800

= $6,600

Ramer share of remaining loss= Remaining income x 1/2

= 6,600 x 1/2

= $3,300

Knox share of remaining loss= Remaining income x 1/2

= 6,600 x 1/2

= $3,300

	Ramer	Knox	Total
Salary allowance	52,000	41,600	93,600
Interest allowance	6,400	9,400	15,800
Total	58,400	51,000	109,400
Remaining loss	-3,300	-3,300	-6,600
Total income	55,100	47,700	102,800

2.

Total loss= $20,800

Total of salary allowance and interest allowance = $109,400

Remaining Loss= Total of salary allowance and interest allowance+ Total loss

= 109,400+20,800

= $130,200

Ramer share of remaining loss= Remaining Loss x 1/2

= 130,200 x 1/2

= $65,100

Knox share of remaining loss= Remaining Loss x 1/2

= 130,200 x 1/2

= $65,100

	Ramer	Knox	Total
Salary allowance	52,000	41,600	93,600
Interest allowance	6,400	9,400	15,800
Total	58,400	51,000	109,400
Remaining loss	-65,100	-65,100	-130,200
Total loss	-6,700	-14,100	-20,800