Question

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $316,800 and $211,200, respectively.

Determine their participation in the year's net income of $246,000 under each of the following independent assumptions:

A. No agreement concerning division of net income.

B. Divided in the ratio of original capital investment.

C. Interest at the rate of 10% allowed on original investments and the remainder divided in the ratio of 2:3.

D. Salary allowances of $83,000 and $115,000, respectively, and the balance divided equally.

E. Allowance of interest at the rate of 10% on original investments, salary allowances of $83,000 and $115,000, respectively, and the remainder divided equally.

           Hawes                   Albright

a)

b)

c)

d)

e)

Answer 1

a) No Agreement Concerning Division Of Net Income

In the Absense of agreement profits are divided equally in the partners

Hence, Hawes Part in Net Income = $246000/2 = $123000

Albright Part in Net Income = $246000/2 = $123000

B.) Divided in the ratio of original capital investment.

Hawes Capital = $ 316800, Albright Capital = $211200

Ration Between Hawes And Albright Capital = $316800 : $211200 = 3 : 2

Hence Hawes Part in Net Income = ($246000 x 3/5) = $147600

Hence Albright Part in Net Income = ($246000 x 2/5) = $98400

c) Interest at the rate of 10% allowed on original investments and the remainder divided in the ratio of 2:3.

Interest-

Hawes = $316800*10% = $31680

Albright = $211200 * 10% = $21120

Balance Net Income = $246000- $31680- $21120= $193200

Hawes = $193200* 2/5 = $77280

Albright = $193200 * 3/5 = $115920

Hawes total = $31680+ $77280= $108960

Albright total = $21120+ $115920= $137040

(D) Salary allowances of $83,000 and $115,000, respectively, and the balance divided equally

total Salary = $83000+$115000 = $198000

Balance Net Income = $246000-$198000= $48000

	Hawes	Albright
Salary	$83,000	$115,000
Balance- equally ($48000/2)	$24000	$24000
Total	$107000	$139000

(E) Allowance of interest at the rate of 10% on original investments, salary allowances of $83,000 and $115,000, respectively, and the remainder divided equally.

	Hawes	Albright	Total
Interest @ 10% of Investments	$31680	$21120	$52800
Salary	$83000	$115000	$198000
Balance Net Loss = $246000-$52800-$198000                             = ($4800) Divided Equally	($2400)	($2400)	($4800)
Total	$112280	$133720	$246000