Question

Dividing Partnership Net Income

Required:

Steve King and Chelsy Poodle formed a partnership, dividing income as follows:

1. Annual salary allowance to Poodle of $168,780.
2. Interest of 5% on each partner's capital balance on January 1.
3. Any remaining net income divided to King and Poodle, 1:2.

King and Poodle had $66,000 and $105,000, respectively, in their January 1 capital balances. Net income for the year was $291,000. How much is distributed to King and Poodle?

Note: Compute partnership share.

King: $____

Poodle: $____

Answer 1

Here, it is not stated whether the net income given in the question is before or after providing salary allowance and interest on capital. Hence, the solution is provided in both cases:- If salary and interest on capital is provided from net income given
	Net Income	291,000
Less:	Annual salary allowance to Poodle	168,780
	Net Income after salary	122,220
Less:	Interest on Capital:
	King (66,000 x 5%)	3,300
	Poodle (105,000 x 5%)	5,250
	Net Income (after salary and interest)	113,670
	Distributed in the ratio of 1:2
	King (113,670 x 1/3)	37,890 $
	Poodle (113,670 x 2/3)	75,780 $
If Net Income given is after providing salary and interest
	Net Income	2,91,000
	Distributed in the ratio of 1:2
	King (291,000 x 1/3)	97,000 $
	Poodle (291,000 x 2/3)	1,94,000 $