Question

Steve Jack and Chelsy Dane formed a partnership, dividing income as follows:

Annual salary allowance to Jack of $142,500.

Interest of 6% on each partner's capital balance on January 1.

Any remaining net income divided to Jack and Dane, 1:2.

Jack and Dane had $66,560 and $75,000, respectively, in their January 1 capital balances. Net income for the year was $250,000. How much is distributed to Jack and Dane?

Note: Compute partnership share to two decimal places. Round final answers to the nearest whole dollar.

Answer 1

Step 1: Calculate Partnership Share in Balance Net Income

The net income that will be distributed between the partners is calculated as below:

Balance Net Income (After all Adjustments) = Net Income for the Year - Salary Allowance to Jack - Total Interest on Capital

Using the values provided in the question in the above formula, we get,

Balance Net Income (After all Adjustments) = 250,000 - 142,500 - 6%*(66,560 + 75,000) = $99,006.40

Now, we can calculate the share of each partner as below:

Jack's Share in Balance Net Income = 99,006.40*1/3 = 33,002.13

Dane's Share in Balance Net Income = 99,006.40*2/3 = 66,004.27

_____

Step 2: Calculate Amount Distributed to Jack and Dane

The value of total amount distributed to Jack and Dane is determined with the use of following table:

	Jack	Dane
Salary Allowance	142,500.00	0.00
Interest on Capital	3,993.60 (66,560*6%)	4,500.00 (75,000*6%)
Balance Share in Net Income (from Step 1)	33,002.13	66,004.27
Total Amount Distributed	$179,495.73	$70,504.27

Total Amount Distributed to Jack (after rounding off) = $179,496

Total Amount Distributed to Dane (after rounding off) = $70,504