Question

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $75,000 and $225,000, respectively.

Determine their participation in the year's net income of $109,000 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 6% allowed on original investments and the remainder divided in the ratio of 2:2.

d. Salary allowances of $38,000 and $50,000, respectively, and the balance divided equally.

e. Allowance of interest at the rate of 6% on original investments, salary allowances of $38,000 and $50,000, respectively, and the remainder divided equally.

Answer 1

			Amount in $
a.)		Tyler Hawes	Piper Albright
	Participation in year's Net Income	54,500	54,500
		=109000/2	=109000/2
b.)		Tyler Hawes	Piper Albright
	Participation in year's Net Income	27,250	81,750
		=109000*75000/300000	'=109000*75000/300000
c.)		Tyler Hawes	Piper Albright
	Interest Allowed @6%	4,500	13,500
	Remainder 2:2 ( 109,000-4,500-13,500 )	45,500	45,500
	Participation in year's Net Income	50,000	59,000
d.)		Tyler Hawes	Piper Albright
	Salary allowance	38,000	50,000
	Balance-equal ( 109,000 - 38,000 - 50,000 )	10,500	10,500
	Participation in year's Net Income	48,500	60,500
e.)		Tyler Hawes	Piper Albright
	Interest Allowed @6%	4,500	13,500
	Salary allowance	38,000	50,000
	Balance-Equal (109,000 - 4,500 - 13,500 - 38,000 - 50,000 )	1,500	1,500
	Participation in year's Net Income	44,000	65,000