Question

Tyler Hawes and Piper Albright formed a partnership, investing $210,000 and $70,000, respectively.

Determine their participation in the year's net income of $110,000 under each of the following independent assumptions:

1. No agreement concerning division of net income.
2. Divided in the ratio of original capital investment.
3. Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:2.
4. Salary allowances of $36,000 and $50,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 6% on original investments, salary allowances of $36,000 and $50,000, respectively, and the remainder divided equally.

	Hawes	Albright
(a)	$	$
(b)	$	$
(c)	$	$
(d)	$	$
(e)	$	$

Answer 1

(a) $ 55,000 $ 55,000

Divide $110,000 equally to both partners

(b) $82,500 $27,500

As per investment Ratio will be 110,000 X 210000/280000 and 110,000 X 70000/280000

(c) $59,200 $50,800

Interest at the rate of 6% allowed on original investments and the remainder divided in the ratio of 2:2.

Interest payable is Hawes 210000 X 6/100 = 12,600 and Albright 70000 X 6/100 = 4,200

Remaining net income will be 110,000-12,600-4,200=93,200

Dividing 93,200 in the ratio 2:2 will be

Hawes 93,200 X 2/4 = 46,600

Albright 93,200 X 2/4 = 46,600

Hawes share will be 12,600+46,600=59,200

Albright share will be 4,200+46,600=50,800

(d) $48,000 $62,000

Salary allowances of $36,000 and $50,000, respectively, and the balance divided equally.

Remaining income will be 110,000-36,000-50,000=24,000 i.e both will get 12,000

Hawes share will be 36000(salary)+12,000=48,000

Albright share will be 50,000(salary)+12,000=62,000

(e) $52,200 $57,800

Allowance of interest at the rate of 6% on original investments, salary allowances of $36,000 and $50,000, respectively, and the remainder divided equally

Interest payable is Hawes 210000 X 6/100 = 12,600 and Albright 70000 X 6/100 = 4,200

Salary allowances of $36,000 and $50,000

Remaining income will be 110,000-12,600-4,200-36000-50,000=7,200

7,200 divided equally will be 3,600

Hawes share will be 36000(salary)+12,600 (interest) + 3,600(Income share)=52,200

Albright share will be 50,000(salary)+4,200 (interest) + 3,600(Income share)=57,800