Question

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $217,500 and $72,500, respectively.

Determine their participation in the year's net income of $108,000 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 5% allowed on original investments and the remainder divided in the ratio of 2:2.
4. Salary allowances of $34,000 and $48,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 5% on original investments, salary allowances of $34,000 and $48,000, respectively, and the remainder divided equally.

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

Answer 1

		Income	Workings	Hawes	Workings	Albright	Workings
a)		$ 108,000.00		$ 54,000.00	($ 108000 / 2)	$ 54,000.00	($ 108000 / 2)
b)		$ 108,000.00		$ 81,000.00	($ 108000 x 75/100)	$ 27,000.00	($ 108000 x 25/100)
c)		$ 108,000.00
	Less: Interest	$   14,500.00	[($ 217500 + $ 72500) x 5%	$ 10,875.00	($ 217500 x 5%)	$    3,625.00	($ 72500 x 5%)
	Net Income	$   93,500.00		$ 46,750.00	($ 93500 x 2/4)	$ 46,750.00	($ 93500 x 2/4)
				$ 57,625.00		$ 50,375.00
d)		$ 108,000.00
	Less:Salary	$   82,000.00	($ 34000 + $ 48000)	$ 34,000.00		$ 48,000.00
	Net Income	$   26,000.00		$ 13,000.00	($ 26000/2)	$ 13,000.00	($ 26000/2)
				$ 47,000.00		$ 61,000.00
e)		$ 108,000.00
	Less: Interest	$   14,500.00	[($ 217500 + $ 72500) x 5%	$ 10,875.00	($ 217500 x 5%)	$    3,625.00	($ 72500 x 5%)
	Less:Salary	$   82,000.00	($ 34000 + $ 48000)	$ 34,000.00		$ 48,000.00
		$   11,500.00		$    5,750.00	($ 11500 /2 )	$    5,750.00	($ 11500 / 2)
				$ 50,625.00		$ 57,375.00