Question

Danny Spurlock and Tracy Wilson decided to form a partnership on July 1, 20-1. Spurlock invested $80,000 and Wilson invested $20,000. For the fiscal year ended June 30, 20-2, a net income of $78,000 was earned. Determine the amount of net income that Spurlock and Wilson would receive under each of the following independent assumptions: Income to be allocated $ 78,000 Spurlock Wilson Total

1. There is no agreement concerning the distribution of net income.

2. Each partner is to receive 10% interest on their original investment. The remaining net income is to be divided equally.

3. Spurlock and Wilson are to receive a salary allowance of $37,000 and $25,000, respectively. The remaining net income is to be divided equally.

4. Each partner is to receive 10% interest on their original investment. Spurlock and Wilson are to receive a salary allowance of $37,000 and $25,000, respectively. The remaining net income is to be divided as follows: Spurlock, 75% and Wilson, 25%. Feedback

Answer 1

1.

	D. Spurlock	T. Wilson	Total
Net income	39000	39000	78000

When there is no agreement concerning division of net income, profits and losses are shared equally by all partners.

2.

	D. Spurlock	T. Wilson	Total
Interest	8000	2000	10000
Remaining income (1 : 1)	34000	34000	68000
Total $	42000	36000	78000

3.

	D. Spurlock	T. Wilson	Total
Salary allowances	37000	25000	62000
Remaining income (1 : 1)	8000	8000	16000
Total $	45000	33000	78000

4.

	D. Spurlock	T. Wilson	Total
Interest	8000	2000	10000
Salary allowances	37000	25000	62000
Remaining income (75 : 25)	4500	1500	6000
Total $	49500	28500	78000